The investigation of Ivanhoe Donaldson was a classic paper chase that tracked about $190,000 in city funds through various intermediaries, including close friends, city contractors and Donaldson-controlled private firms, on its way into Donaldson's pockets.

The probe began with a phone call tipping police to an unrelated scandal in the D.C. Department of Employment Services.

It grew to involve a repair bill for Donaldson's Mercedes-Benz, the stricken conscience of one of his best friends, and the dogged perseverance of a low-key city official willing to implicate one of the city government's most powerful figures.

In July 1984, Employment Services Director Matthew F. Shannon called D.C. police officials to tell them about a possible illegal purchasing scheme in the department. Two mid-level employes eventually went before a D.C. Superior Court grand jury and acknowledged buying household goods with department funds. Sensing the possibility of wider corruption, the U.S. attorney's office transferred the case to a special unit and called in the FBI.

Meanwhile, Mayor Marion Barry reacted by ordering Inspector General Joyce Blalock to investigate the financial controls in Employment Services. In late August, Blalock began turning up evidence implicating a former director of the department -- Ivanhoe Donaldson.

Blalock had discovered a special administrative fund -- at times containing as much as $250,000 -- that was separate from the city's centralized accounting system. Donaldson and other department officials could authorize and sign checks drawn on the fund with no further review. Records were kept in a handwritten ledger.

Blalock's staff came to question five checks from the special fund, totaling more than $30,000, and a $1,645 payment to the American Service Center for repairs to Donaldson's Mercedes.

A source familiar with Blalock's investigation said she was concerned that there was little or no documentation for the expenditures and that her investigators could find no evidence that work had been done in return for the checks, all of which were made out to friends of Donaldson.

Blalock immediately reported her findings to Barry and City Administrator Thomas M. Downs. The mayor called in Herbert O. Reid, a former civil rights lawyer and Howard University law professor who has known Barry for 20 years and serves as his legal adviser. Sources said there were numerous meetings as the sensitive probe began to unfold.

One participant said the mayor advised Blalock to "make sure you're right. When you're satisfied you are, then we'll go the prosecutors."

On Nov. 2, 1984, according to documents filed in court yesterday, Donaldson sent Blalock false affidavits from the four persons to whom the five questioned checks had been made out, attesting that they had been for legitimate city government work.

Blalock told the mayor that her findings justified turning the case over to the U.S. attorney's office for possible prosecution.

Barry concurred with her recommendation and ordered her to turn her evidence over to U.S. Attorney Joseph E. diGenova, a man the mayor had charged was out to get him.

"It wasn't the easiest thing he's done," a Barry aide explained later.

"He did it because of the feeling that it was the right thing to do and because you didn't know what the other stuff was [that might surface] or who would come up with what," the aide said.

On Nov. 16, two weeks after she received the affidavits, Blalock turned over her findings to the U.S. attorney's office.

One of the disputed checks had been made out for $4,500 to Charles Cobb, a journalist, who is one of Donaldson's best friends. In December 1984, Cobb was summoned before a federal grand jury to testify about the check.

A source close to Cobb said he agonized over what to say, but finally decided his own credibility as a journalist was at stake and testified truthfully that he had done no work for the city that would have led Donaldson to legitimately issue the check.

Last spring, the scope of the investigation -- handled by Assistant U.S. Attorneys Daniel J. Bernstein and David F. Geneson -- widened significantly: Investigators uncovered separate city government payments of $36,000, $52,000 and $18,000 that were diverted through middlemen to Donaldson.

The investigation culminated in Donaldson's guilty plea yesterday. Blalock, meanwhile, has left city service and taken a post as inspector general of the Government Printing Office.