Last spring, when students were suing Harvard Delivery News Service (HDNS) for failing to reimburse them in full for missed copies of The New York Times and the Boston Globe, HDNS officials and subscribers were haggling out questions of nickels and dimes.

Meanwhile--unknown to angry subscribers--HDNS and the newspapers' wholesalers were trying to settle questions of thousands of dollars.

Archie C. Epps III, dean of students--who calls himself Harvard's "official responsible for the service" even though HDNS and Harvard have no legal relationship--admitted that HDNS's manager until January 1980, Martin Olive '78-4, left the news service with almost $10,000 in bad debts and more than $14,500 in unaccounted-for check stubs.

Epps said he believes $6000 to $7000 of that sum was embezzled by Olive before he left the service. Olive this week refused to call his financial mismanagement "embezzlement," but he did say, "I made some very bad decisions, and I'm not trying to defend myself."

Although Mitchell W. Smith '82 assumed HDNS's managerial position in early February, Epps said that he and Smith did not fully piece together the news service's financial record--which were left by Olive in what Epps calls "complete disorganization"--for well over two and a half months.

But the bills had fallen due far before that mid-April point; News Distributors, Inc.--the wholesaler that sells the Times to HDNS--was demanding payment on the largest, a $7444.62 bill in early March, while the Boston Globe looked for HDNS to come up with $2000 to $3000 to take care of another outstanding debt.

Interested in keeping service running as smoothly as possible--after a very bumpy fall, epitomized by highly erratic delivery--Epps decided to bail HDNS out by co-signing with Smith for $14,000 in loans from Cambridge Trust Company and by allocating $2000 from a "discretionary fund" available to him as dean.

Epps said he decided to use the discretionary fund money because he "hadn't really gotten an accurate notion of what was going on." Both Epps and a University attorney said Epps' use of the fund did not violate Harvard rules.

Once Epps did glean an "accurate notion" in late May, when he talked to Olive for the first time since the discrepancies had been discovered, he decided not to prosecute the former manager because of "concern for Olive's personal situation." Epps said he learned through discussion with the former manager that Olive was a "drug user," an allegation on which Olive refused to comment this week.

So Epps and Olive agreed that Olive would instead make a $5000 restitution to the service in a series of payments. So far, Olive has paid only $1400 of the total, and HDNS still has a $5000 debt with Cambridge Trust.

Although sources said this week they believe Olive sold cocaine during his tenure, Olive refused to comment on that charge; and Epps said he was unaware of the allegations. "My actions were based upon the assumption that he was simply a user and not a dealer, and if there had been evidence he had been trafficking then it would have become a disciplinary matter," Epps said.

Several University administrators, including Dean Fox, had no comment on the matter yesterday.