Because of an editing error, an attorney quoted in a May 27 story on InterAid International was not fully identified. He is Paul W. Kahn of the Washington office of Powell, Goldstein, Frazer & Murphy.

U.S. relief officials have indicated that they may soon revive a surplus-food contract with an international religious organization embroiled in controversy over its African relief programs.

The Christian organization, InterAid International, has seen revenue from donations decline sharply and has hired a prominent Atlanta law firm to respond to media and legal attacks, including charges that it misused relief funds.

InterAid, said by its founder to have been victimized by a "witch hunt" in January, has persuaded at least some federal officials that its operations in Portugal are worthy of renewed support in the form of surplus dairy products worth $1 million.

But Nello Panelli, communications director for the organization, said bad publicity -- particularly an apparently false charge that the group misappropriated $20 million in donations for Ethiopian relief -- has crippled its fund-raising, forced layoffs and killed a plan to put an Atlanta executive at the top of the organization, which is based in Camarillo, Calif.

The U.S. attorney's office here is investigating InterAid after former staff members charged that the organization spent only a small portion of the money it raised on its heavily publicized relief programs. InterAid officials deny the charge. They say they expect to be cleared but fear that a drawn-out investigation could hinder efforts to restore confidence in the organization.

InterAid launched a major U.S. campaign Nov. 9 seeking contributions for starving Africans. In late December, the San Jose Mercury News reported a Ventura County district attorney investigation of InterAid fund-raising, apparently based on charges by former employes. In early January, The New York Times reported the estimate of "one experienced fund-raiser" that InterAid "had probably brought in more than $20 million in the past three months alone" and said it could find no evidence of any of that money reaching Ethiopia.

InterAid founder and president Joe Bass, who had been on vacation, held a news conference here and released company records showing that InterAid had spent $168,575 on drugs, a Landcruiser, protein-blend food and the expenses of a medical team bound for Ethiopia. Company officials produced documents showing that the advertising campaign had raised only $1.3 million and that all was slated for the relief effort.

Editorial writers, however, had responded angrily to the initial report of $20 million raised and not spent, Panelli said. The U.S. attorney took over the Ventura County investigation, and the relief group that had agreed to funnel InterAid money into Ethiopia pulled out of the deal.

"Once the story is out, people tend to believe what they read," Panelli said.

"Income has been affected severely," he said. He estimated that monthly contributions of about $1 million had been reduced "40 to 50 percent." He said 21 staff members had been laid off.

Attorneys with the Washington office of the Atlanta firm Powell, Goldstein, Frazer & Murphy said InterAid is close to completing changes in its accounting and advertising practices that it hopes will satisfy objections made by the Philanthropic Advisory Service of the Council of Better Business Bureaus Inc.

At the suggestion of Atlanta business executive William Weiller, who joined the organization as executive vice president shortly before the charges surfaced, InterAid retained the Atlanta law firm, whose partners include former top Carter administration officials Stuart E. Eizenstat and Lawrence B. Simons.

When the controversy began in early January, the U.S. Agency for International Development (AID) halted a plan to give InterAid surplus dairy products for Portuguese of African descent. Kahn said his talks with U.S. officials have left him "cautiously optimistic" that the food will be delivered.

Art Braunstein, the U.S. Food for Peace officer handling the operation, said no decision had been made. Another AID official said the agency's expert in Portugal had investigated the InterAid program there and "found no problems."

InterAid's financial difficulties have aborted plans to make Weiller president, Panelli and Weiller said. The Atlanta executive, formerly president of Kem Manufacturing Corp., said he had taken a 50 percent pay cut to about $100,000 a year to take the InterAid job, but Bass decided he could not give up the presidency with InterAid in serious trouble.

A spokesman for the U.S. attorney here declined to comment on the investigation of InterAid. Deputy state attorney general Peter Shack, who has suspended his own InterAid investigation while the federal probe proceeds, said he assumes that the investigation could take several months if it seeks evidence abroad. "It takes time and money," he said.

Panelli said that, despite the financial problem, InterAid has managed to commit about $1 million to four new projects for helping Ethiopian refugees in Sudan. Kahn said InterAid officials, who had "severe problems" dealing with U.S. embassies in east Africa after the initial publicity, now say "everything is going real well."