Allegations of misuse of funds against James L. Denson, until the other day president of the D.C. Chamber of Commerce and chairman of the D.C. Board of Education and Ethics, reveal a startling weakness in the District government's system of handing out grants monies. There appears to be no system of safeguards whatever to prevent an organization from misusing grants. In Mr. Denson's case, it is alleged that he misappropriated thousands of Chamber of Commerce dolars, most of which had come from the District government in the form of grants. Mr. Denson, who has now resigned as president of the chamber and -- oh, cruel irony -- as chairman of the ethics board is said to have used some of the money to further his private business interests.

Leaving the substance of these charges to others, we think it more than slightly worth dwelling on the non-fail-safe system the episode reveals. According to D.C. Inspector General Joyce Blalock, the only safeguard that exists to prevent misuse of grants is a new federal law requiring the city government to reveiw every two years its procedure for giving out grants. But the city government has no law or policy requiring that groups receiving grants be audited or have records of how and where grant funds have been spent. The D.C. auditor's office reports that after a grant is made by a city agency to the Chamber of Commerce, for example, the only stipulation is that city officials must be allowed to review reports and records of how the money was spent if city officials ask to do so. However, there is no requirement that records be kept or that any such records be compiled in accordance with any standard accounting procedure. In other words, a grant-receiving agency could tell an inquirin city official that no records were kept of grant spending and not be in violation of any law.

There is a federal safeguard on one type of grant the city distributes -- the Comprehensive Training and Employment Act. All groups receiving CETA money must have finanical records that can be audited. But currently, auditors in the District's Department of Employment Services say, that rule if interpreted to cover only new organizations. Established groups, such as the Chamber of Commerce, do not have their financial records checked by the District government under that law. This conforms, according to the auditors, with the city's general policy of not auditing groups that receive government grants. Much of the reason for that policy is that the District has no single unit to handle audits. Auditing responsibility is handled internally by each individual city agency.

Some agencies choose not to perform audits while others audit some programs. Most of the individual auditors do not review how grants are being spent because there is no policy that requires such audits. According to a 1977 study by the D.C. auditor's office, 19 different city agencies gave grants to 125 different organizations without benefit of common standards for choosing which organizations would receive the money and without any requirement for the chosen group to report what it actually did with the money.

This latest trouble with grants is only further evidence that the city government now should include grants in its regular budgeting. Currently, grants come to the city government without any review from the District Council or the mayor as to what they will be used for or what outside groups will receive them. The grants are handled entirely by individual agencies, although about $500 million worth pass through the city government. For example, the council never has had the opportunity to decide if the Chamber of Commerce is the best place for the Department of Employment Services to have people trained as tour guides or even if youngsters should be trained as tour guides.

One special point should be made about the charges against Mr. Denson. The allegations of his wrongdoing may have cast a shadow over the D.C. Chamber of Commerce. They should not have. Founded in 1938, the chamber has served as an advocate for black businesses in the city through years of segregation, racial turmoil and now increasing integration. According to its own brochure, "achievement and recognition have been slow" for the chamber. Its stature has been dwarfed in the community by the Greater Washington Board of Trade. Even so, the chamber has helped by giving some business advice to small firms in the city and it has taken a role in community affairs, acting as a bridge between black businessmen and the city government. The group is currently trying to intregate itself while maintaining its emphasis on small businesses. This worthy goal should not fall victim of the Denosn affair. It is important to remember that it is Mr. Denson who is the object of investigation -- not the ethics board or the chamber.