A Virginia business school that has provided federally financed instruction to hundreds of inmates at the state's prisons has been indicted on charges of fraudulently obtaining $284,000 in federal education grants.

The Elizabeth Brant School of Business, which has teaching facilities in Staunton and Harrisonburg in the Shenandoah Valley, was accused in a 57-count indictment of seeking the federal money by falsely claiming that more than 500 inmates attended the school's small-business management courses in 1979, 1980 and 1981.

Stuart A. Sandow, the school's president, and Steve E. Proffitt, its director of correctional education services, were also charged with conspiracy, embezzlement, mail fraud and making false statements. The indictment was returned Wednesday by a federal grand jury in Roanoke.

Larry Shewan, the school's chief executive officer, issued a statement, saying: "While we do have the indictment in hand, we have not yet had the opportunity to fully analyze with our attorneys the basis or the extent of the allegations. Although we will issue a statement in the very near future, it is inappropriate for us to comment at this time."

Peter Leyton, a lawyer for the school, said it would "voluntarily suspend" its prison programs because of the criminal charges. The Virginia Rehabilitative School Authority also said it was taking "immediate action to suspend operations" by the school. Nonprison courses offered in Staunton and Harrisonburg will continue, officials said.

The school was criticized previously by Rep. G. William Whitehurst (R-Va.) and the General Accounting Office for another aspect of its prison program. The school received federal grants for half the inmates' tuition, then waived the remaining payments, allowing prisoners to enroll free.

"We believe this practice circumvents the purpose of the Pell Grant program and is therefore inappropriate," GAO said.