The risks in doing business with Bevill, Bresler and Schulman Asset Management Corp., the failed securities dealer, were not only foreseeable. They were actually foreseen by at least one close watcher, Alvin C. Frost, a money manager for the District of Columbia government. In a perceptive memo to his boss last December, Mr. Frost laid out all the right reasons for avoiding the firm.

Mr. Frost's superiors at the District Building chose to override his advice, for reasons that they have not yet adequately explained. The result is that the city has only narrowly escaped a nasty and costly legal struggle to retrieve the $10 million invested with this dealer at the moment it went into receivership. The city has the principal back, but the episode is likely to result in other real costs to the city -- if nothing else, costs to the city's reputation for careful management of its funds. That translates into higher interest charges when the city borrows.

Mayor Barry's defense -- that the city is an "aggressive investor" -- is no explanation. There's a difference between aggressively pursuing risk-free returns and financial speculation. The deputy mayor for finance, Alphonse G. Hill, says that he never saw Mr. Frost's memorandum. Why not? Isn't he in control of his own office?

Mr. Hill and the mayor are trying to put the responsibility for this bad investment decision on none other than Mr. Frost himself. That seems both unfair and inaccurate. Mr. Frost's memo -- written, remember, last December -- said that Deputy Mayor Hill wanted to invest with Bevill, Bresler and Schulman. Who was it, then, who really made the decision -- and why?

Mr. Frost's memo is a good illustration of the way that a careful professional analyst picks up warning signals. He noted that this firm had similarities to E.S.M. Government Securities, with which the city government had had difficulties earlier -- and which collapsed last month. He also pointed out that Bevill, Bresler and Schulman was operating with conspicuously low capital in relation to its volume of business.

The firm both borrowed and lent, using government securities as collateral, and when it borrowed it paid high interest. Mr. Frost raised the questions that come immediately to a financial analyst's mind: Why were they able to pay such fat returns? To whom were they lending at such high rates? Was it possibly to small institutions that urgently needed money?

In his memo, Mr. Frost was doing his job and doing it well. He was protecting the city and its funds. What happened after he sent that memo up the ladder? Who overrode him? If the mayor doesn't know any more about it than his statement yesterday indicates, he knows a great deal less than he -- and the voters -- need to know.