A former employe of Art Metal-USA Inc., which sells the General Services Administration $25 million in metal office furniture each year, testified in Senate hearings yesterday that it was "common knowledge" at the company that Art Metal was paying off GSA inspectors to overlook shoddy furniture.

Louis Arnold, who worked in the Newark firm's accounting department, said he made daily trips to several different banks to obtain thousands of dollars in cash at the request of Joseph Markowitz, Art Metal's comptroller.

Arnold said he gave the money - all in $20 denominations - to Markowitz.Markowitz invoked his Fifth Amendment privilege against self-incrimination when asked yesterday by Sen. Lawton Chiles (D-Fla.), chairman of the hearings, what he did with the cash.

The testimony came on the second day of hearings by the Senate Governmental Affairs' federal spending practices subcommittee into Art Metal's contracts with GSA, which provide federal workers with office space and furnishings.

Last summer, The Washington Post reported that GSA continues to buy most of its metal desks, file cabinets, and bookcases from Art Metal despite complaints that the furniture arrives with drawers and locks that fail to operate, tops that are peeling off, and finishes that have begun to rust.

In March, The Post reported that subcommittee investigators had established that Art Metal was siphoning off $100,000 to $200,000 in cash each year from its operations by writing checks to a trucking firm that never received them.

Yesterday, F. tmarvin Doyal, a General Accounting Office auditor assigned to the subcommittee, testified he discovered an additional $483,000 in cash siphoned off by Art Metal from its operations over the last five years. He said Art Metal officials claimed the money was needed to buy equipment at auctions. In fact, the equipment was paid for by check, Doyal said.

Besides this money, $854,000 more was paid over a five-year period to "I. Spiegel," the president of Spiegel Trucking Inc., which transports much of Art Metal's furniture to GSA, Doyal testified.

The money never ended up at Spiegel Trucking, Doyal said, and was usually cashed. Isadore Spiegel, president of Spiegel Trucking, declined to honor a subcommittee subpoena for the records of I. Spiegel, which he described as a proprietorship, on the grounds that the records might tend to incriminate him, Doyal said.

Jerry Maloney, a partner with Touche, Ross & Co., the accounting firm that audits Art Metal's books, said he found Art Metal had $258,900 in currency on hand when he checked the company's cash accounts last year. He termed this an unusual amount of cash for a firm of Art Metal's size.

Arnold, the former Art Metal employe, testified that company officials took GSA inspectors to lunch every day and that "honest" GSA inspectors did not last long.

"When an item was knocked down (rejected by the inspectors for poor workmanship), they'd send it to a back room, and a half-hour later it was shipped out," Arnold said. He said the same GSA inspectors then passed the defective product, even though nothing had been done to fix it.

Paul Freedman, a former GSA inspector assigned to Art Metal, invoked his Fifth Amendment right against self-incrimination when asked by Chiles if he had ever accepted cash or anything else of value from a government contractor.

Art Metal officers are scheduled to testify today.