At D-Q University, a two-year college for Indian students on a deserted Army base near Davis, Calif., chancellor Dennis Banks teaches an independent study course to board chairman David Risling. Risling, in turn, teaches Banks and several trustees in "governance" and "management procedures."

Dean of students Carlos Cordero also teaches Banks. Controller Rudy Vargas teaches six staffers "basic fiscal management," and registrar Ann Loufus teaches assistant registrar Dale Robertson.

The problem, according to Department of Education auditors, is that these officials are counting themselves among the few dozen students the auditors found at the school last fall. The department has been leasing 643 acres of land at no cost to the college on the condition that the school have at least 200 students.

While D-Q is receiving $489,000 in federal aid this year, Education Department officials are considering reclaiming the land, which would effectively close the school.

Allowing the college to keep control of the land, Education Secretary Terrel H. Bell wrote to Congress, "would disregard a disquieting record of failures and mismanagement by D-Q University."

Auditors for the department last month completed an 18-page draft of their findings. They said, among other things:

The college awarded only nine academic degrees last year.

In nine out of 12 cases reviewed, the students were listed as earning money in the college work-study program while they were supposed to be in class.

A student registered in one class is listed as the faculty member teaching another class at the same time.

Another faculty member is being paid for maintenance duties during the hours he is supposed to be teaching.

Steven Baldy, D-Q's president, said the Education Department is biased against the college, which he says has 86 full-time students on campus. He called the audit "a political document full of misinformation" that he said was deliberately designed to put the school out of business. Baldy said there is nothing wrong with counting school officials as students, and that the auditors exaggerated a series of scheduling mixups and "students arriving 15 or 20 minutes late."

Political controversy is not new to D-Q, which began early in the stormy 1970s, when the American Indian Movement was led by Dennis Banks, now the school's chancellor. Banks, who later gained national recognition at Wounded Knee, S.D., is wanted in South Dakota for sentencing on riot and assault charges stemming from another 1973 demonstration, but California authorities have refused to extradite him.

In 1971, a handful of militant American Indians occupied the deserted Army base at Davis, and petitioned the government to let them remain on the site and operate a school. Their goal, they said, was to prepare Indian students for entering a white-dominated society by teaching them their own history, culture, and religion, along with basic skills.

After promising the government that they would meet certain minimum requirements, the Indians founded a college, officially called Deganawidah-Quetzalcoatl. The auditors now say these requirements have been violated repeatedly.

After visiting the college last fall, the auditors said they found no students and no teacher at a class called "Introduction to Indigenous Counseling," which was supposed to have 15 students. They say they found no one at a "Natural Science Seminar" in which 17 students were registered. A course on "Native American Law" was listed for 19 students, but had only four.

In all, the auditors said they found 39 students in classes that had 133 registered.

The department also says D-Q violated the lease by renting out the land without the government's approval until 1979. The college made $128,500 by leasing a building to an engineering firm and by renting land to farmers to grow rice, corn and wheat. Baldy has refused to pay a three-year-old government claim for that money, saying the school's action was entirely proper.

Now, the auditors say, all but 10 acres of the flat farmland is lying idle, overgrown with weeds and used only for an annual ritualistic sun dance. The auditors found half the buildings vacant and in disrepair.

The auditors also said that some federal financial aid is going to students who are no longer eligible. In one case, they said, a husband and wife have received $36,000 in federal grants since the spring of 1977 without earning a two-year degree. Both students have been at the college for 11 semesters and are still undeclared majors, the audit said.

D-Q officials recently found support on Capitol Hill, where Rep. Vic Fazio (D-Calif.) and 11 other California members of Congress are pushing legislation that would give the federal land to D-Q, which otherwise would have to wait 20 years to assume ownership of the property.

"The college just hasn't been viable," said Pat Fulton, a spokesman for Fazio. "Some people say that's a reason to take the property back, but we say it's a reason to change the arrangement."

Department officials recommended three years ago that the government reclaim the land, and contract officials last year blocked a proposed $100,000 grant to the school.

Ralph Olmo, the department's controller, said that "we've been moving in a fairly straight line toward taking back the 643 acres from D-Q," but he said no final decision has been made.