Harambee House, a hotel that the federal government had hoped would be a showpiece for aid to minority enterprises, has been virtually bankrupt for six months.

In the year since the 160-room luxury hotel opened its doors at 2225 Georgia Ave. NW, the dreams of renewal have turned into a nightmare of missing money, lawsuits, charges of mismanagement and questionable government aid payments.

At the center of the spreading controversy are a supper club operator, a top aide to Mayor Marion Barry and key officials of the Commerce Department's Economic Development Administration.

The future of the hotel, which almost everyone agrees has had a positive impact on the city's Shaw urban renewal community, probably will be determined by the results of an audit report due this weekend.

Commerce Department officials have warned that unless the audit comes up with a complete accounting of the hotel's operations-including more than $100,000 in missing money-the department will move to foreclose and liquidate the assets to recover as much as possible of the $10 million the government has invested in Harmabee House.

There are almost as many explanations about the problems as there are participants in the debate.

Associates of black supper club owner Edward Murphy, who first proposed the hotel a decade ago, say that the project had been hamstrung by federal interference, that construction decisions were made by outside consultant, that a management firm brought in by the Commerce Department was not equipped to run the hotel and that blacks were excluded from most important decisions.

Officials at Commerce's EDA deny this. They say that the agency has bent over backwards in order to make the hotel succeed. They cite a recent-and final-transfer of $1.2 million to the hotel to meet its payroll and such bills as that of Sears, Roebuck & Co., which threatened t take out of the hotel furniture for which it had not been paid.

Some government officials even claim that the recent extension of money was illegal because it came form a fund meant for other purposes.

Almost miraculously, the hotel on Georgia Avenue near Howard University has survived and, in recent months, prospered modestly. Room occupancy is up, service has improved and early mistakes have been corrected. The hotel attracts a clientele of both blacks and whites.

In addition, negotiations close to completion promise an infusion of $500,000 in private capital. A new management team is in place.

Murphy's supporters see the turnaround-if it isn't too late-as a vindication of his approach. Murphy's own firm, Murphy's Hotel Corp., now is running the place for the first time.

To James O. Gibson, who was president of Murph's Hotel Corp. during the tumultuous months of opening the business and who is now the assistant city administrator for planning and economic development in Mayor Marion Barry's government, the Harambee experience is a classic case both of racial stereotyping and government missteps in trying to help central cities.

"There was a presumption that these blacks couldn't [run a hotel] . . . that they weren't professional, not disciplined," Gibson said of government officials and hotel industry experts who insisted that outsiders supervise all operations.

What they failed to perceive, Gibson continued, "was that the stakes are much higher for us . . . that was a flaw because the management company was not on top of the problems."

He was speaking about a Chicage company, Inn Keepers Inc., which was hired under government procurement procedures to run the hotel, help train a staff and keep accout books, all under direct governement surveillance. The Inn Keepers had a contract with Murphy and his associates ended late last year, starting a round of litigation by both sides.

Gibson's successor as president of the hotel company, financial consultant and former Trans World Airlines marketing executive Walker A. Williams, says that if the hotel fails, "it would set beack the course of minority economic development for some years to come . . . and for people with lesser dreams than Ed Murphy's."

In a conflct that has become heated on all sides, there is unamous accord on the symbolism of Harambee House the name for which comes from the Swanhili word for "unity". The hotel has become a symbol for black business accomplishment in the Washington area and across the nation.

The story of how Ed Murphy's dream turned into a nightmare, has been pieced together from a series of interviews by The Washington Post as well as from government and private documents studied over the past six months. It is a story far different from newpaper stories that have been published to dat-all of which focused on hopes for the new venture and the admittedly colorful personality and rich lifestyle of Ed Murphy, whose supper club on Georgia Avenue NW bacame an institution for nightclub artists and civil rights organizers in the 1960s.

Murphy's supper club (now named Haramba) lives on inside the plush hotel and, in an interview, Murphy said that after a decade of troubles with the hotel, hope is not dead. "I want to move on . . . I don't want to find scapegoats . . . there's enough balme to spread all around, a whole congolmerate of participants, "Murphy asserted.

The "real story," according to Murphy, is that "I've always been pointed to, to be blamed; my lifestyle makes say to say I was short in some capacity."

Indeed, one Commerce Department source said: "If it had been up to me, I wouldn't have loaned them (Murphy) a dime . . . Frankly, if Murphy's stays in, I don't think it has a chance of succeeding."

But, Murphy added, "If I had not been here through it all, to feel what was going on, talk to the people, I wouldn't have the hotel today . . . they would have taken it already."

For the longest time, said Murphy, "the body was leading the head around here."

Accounting for such problems is at the root of the Economic Development Administration's recent decision to present its ultimatum to Murphy's Hotel Corp. and People Involvement Corp., a Shaw area community development group that actually obtained the federal money to finance the hotel's construction and is the property's nominal owner. Murphy's firm operates the hotel under a 40-year lease.

An EDA letter to Murphy's otel Corp. President Williams on March 2 detailed several conditions that must be met or the government would take "any and all actions deemed necessary."

Specifically, some EDA officials objected to providing additional federal money for Harambee for the following reasons:

Poor accounting practices which hampered government as well as private audit attempts. The hotel had had four different controllers in its 12-month existence and, for many moths, account books consisted primarily of boxes containing bills and stubs. Williams said the estimate of missing money starts at $100,000 and goes "up and up and up."

The hotel's increased operating indebtness, now totaling about $2.5 million. Of this amount, about $1.2 million was provided since last fall from EDA Care and Preservation of Collateral (CPC) funds, used before when the government has taken over a project and not while private operation continued.

A willingness of EDA officials to continue to provide such funds despite evidence of obvious management and financial difficulties and advice within the department to the contrary.

Operation of the hotel for nearly a year with a payroll and staff approximimately double the size and amount considered economical by hotel industry standards.

Delinquency by the hotel management in paying various creditors, including McLachlen National Bank of Washington, which made a $150,000 loan to Murphy's Hotel Corp. last July to help finance initial business. On March 6, McLachlen sent a letter giving 30 days' notice that it wanted payment in full because two monthly payments of $3,050 each then were overdue.

At a meeting last week, McLachlen's loan committee was told that arrears had been corrected and that Harambee would establish a compensating balance deposit account in the bank. With "new management coming in, to give them a chance to show they're as good as they say for at least three months we have rescinded the call letter," said McLachien loan officer William A. Bryarly Jr.

For the Commerce Department and EDA, friction about the Harambee House could not come at a worse time. A major reorganisation proposal by President Carter calls for expanding the department's responsiblties and increasing its budget to $5 billion annually as the key U.S. economic development bureauracy - including functions Carter once sought in a development bank.

"There's a lot of internal bickering in EDA over this project," one government source said. "There is unbelievable pressure. A lot of people feel there is excessive aupport of the project from the top. So many people are involved in the project, it's hard to maintain continuity." Said another government worker: "If EDA can't supervise an investment several blocks from this office, what does that show about a bigger national role?"

An anonymous letter sent to Assistant Secretary for Economic Development Robert T. Hall, from a Commerce Department employe close to the Harambee House project said, in part: "EDA actions demonstrate a reprehensible degree of irresponsibility, bordering on illegality, by certain EDA officials . . . (the) misuse of taxpayers' money is clear to most observers of this situation, yet EDA persists in pouring substantial amounts of dollars into this project."

Prior to the hotel opening a year ago, EDA picked Inn Keepers, the hotel management company based in Chicago, to provide hotel industry expertise and training leadership. Although selected through EDA contract bidding, Inn Keepers actually was paid by Murphy's firm, and conflicts developed immediately.

In the view of former workers and others interviewwd, EDA appeared to rely exclusively on Inn Keepers to manage the hotel and to keep books. EDA expressed doubts when Murphy and his associates claimed that operating problems were developing.

Founded as an independent hotel management company in 1961, Chicago-based Inn Keepers has contracts to run a number of hotels around the country. Little is known about Inn Keepers, and company president Edward Perry declined to discuss his firm or the Harambee situation "because we're in litigation with them and i've been advised by my attorney not to discuss it."

Inn Keepers sued Murph's charging that cancellation of the management contract last fall was not made with proper advance notice and Murph's is counter-suing, seeking "at least" $500,000 in alleged damages.

George Karras, of the Commerce Department, said that the hotel firm "generally has a fairly good record" but that "I think we al became disenchanted with Inn Keepers."

Because of the alleged lacks of managerial guidance, several areas of day-to-day operation were neglected. There was no switchboard operator until very recently and many telephone calls went unanswered. In at least one case, rotten fruit was sent to the room of a prominent black leader. At banquests, there wasn't enough food.

But the most serious lapse was the absence of record-keeping. "From July through October (1978), over $6,000 in personal checks was lost and unaccounted for," a worker said. Finacnial records "were spread out so on one knew what was going on," he added.

EDA officials, asked about these comments, insisted that there was "constant monitoring of the project," including quarterly financial statements and periodic visits to the site.

But Karras, EDA's deputy assistant operations secretary, admitted that his agency is now studying possible misuse of funds. Karras said EDA used "sophisticated auditing procedures" and claimed that government inspections helped bring the EDA's attention to the development problems at the hotel.

Another EDA source said, however, that "no real control or traces were placed on the money provided to the project." According to Williams, a final 1978 audit due this week from the accounting firm of Touches Ross & Co. is expected to detail at least $100,000 in revenues that never made it to bank accounts. Some hotel equipment and furniture also has disappeared, he said.

Gibson, the former Murph's Hotel Corp. president, said that EDA and Murphy's company "headed toward an adversary relationship" mainly because of such management chaos over which, he also claimed, Murphy had no control.

Gibson charged that EDA has a "lousy management history," and absence of financial controls, "no bottomline disciplines" and attitudes about inner-city business people that made them trust Inn Keepers more than Murphy and his associates.

And yet, he added, despite all such difficulties EDA is "the best" federal government agency for minority entrepreneurs. Gibson said no other agency would have stuck by the Harambee through 10 years.

Both Gibson and Karras emphasized that, a decade ago, private business had no interest in an investment on Georgia Avenue. "He (Murphy) was a marginal supper club owner," Karras recalled in reviewing the initial loan application from Murphy in 1969. "The suburbs were where the private sector was going, the black population in tyhe city was about 75 percent of the total and from EDA's point of view this project was targeted for a poverty, a high/jobless area, and that's what our mission is all about," Karras continued.

In the end, EDA decided to support the hotel project as a "centerpiece" for the depressed area, with Harambee and Howard University becoming anchors that would develop a vital corrdior for commerce by acting as a catalyst.

"The project is designed to help turn around the Shaw area," said Hall, who emphasized that "the project was there" when the Carter administration took over.

As for use of $1.2 million in funds used normally for projects in liquidation, Karras said, "In effect, we were protecting our collateral." The alter native was to "shut it down," he said.

Use of such (CPC) funds was "absolutely" legal because "we were restructing their debt to facilitate their operation of the hotel," Karras continued.

But another EDA source said:"These funds are usually used for heating and guarding Property we've foreclosed on until we decide what to do with it. It's not used for funding the payroll of an ongoing operation. We kept providing it, but I don't know where it was going."

Robert Fastov, assistant chief legal counsel for litigation and liquidation, allegedly advised against providing the CPC aid. Fastov declined to discuss any aspect of the Harambee House except to say, "There are a lot of other problems, not the least of which is CPC."

Responded Karras: "Absolutely no one told us not to supply the CPC funds. There were some questions about how long you supply CPC funds before you bite the bullet. Some will say we should have bitten the bullet quickly. But the agency didn't take that approach."

But the March 2 letter from EDA chief Hall to Murph's Hotel president Williams has brought things to a head. Hall said the agency's "willingness to undertake an important but high-risk project, in a neglected part of the city, could not subordinate EDA's public stewardship responsibitities."

Hall said "there still remain significant deficiencies in your operations and financial position which give us concern."

"The hotel remains an extremely important first step in the economic redevelopment of the inner city, as a provider of jobs for community residents, and as an example of increased minority business entrepreneurship in the District," Hall added.