Harvard yesterday agreed to repay $4.6 million to the federal government, settling a year-old charge that the University has mishandled research funds in the Medical School and School of Public Health.

The settlement, concluding more than two years of negotiations, covers all federal grants received by Harvard during the last 10 academic years and resolves all past government claims against the University.

The Department of Health and Human Services (HHS) originally sought to recover $3.9 million as a result of federal audits of the two schools for the years 1975-77.

Many of the government's claims hinged on charges that professors, who usually control several grants at once, fail to keep close track of which projects they or their staffs spend time on.

In return for extending amnesty to the entire University for the 1973-83 period. Harvard will pay $1 million immediately and excuse an additional $3.6 million in debts owed to the University by HHS.

Officials from both Harvard and HHS yesterday characterized the agreement as fair and said the audit process has spurred substantial improvements in accounting for research grants, at Harvard and at other universities.

"I think the settlement is in the best interests of the University and government," said Financial Vice President Thomas O'Brien. "We wanted to put these issues behind us. They were making it difficult to get other things done," he added.

The government's chief negotiator, Henry G. Kirschenmann of HHS, said, "Harvard was cooperative with us. Their objectives were the same as ours. We have been asking universities for a long time to do a better job of record-keeping."

Kirschenmann added that the $4.6 million repaid by Harvard would go to the United States Treasury.

Linden Tefft, Harvard's director of financial systems, said the University sought to receive blanket amnesty for all past grants to prevent further costly audits.

Besides the two HHS audits conducted in 1980 and 1981, Harvard in 1981 underwent a third audit by the independent firm Coopers & Lybrand, covering the entire University for the year 1978.

"Seven hundred thousand dollars for seven years is not a bad way to go," said Tefft, who managed Harvard's account for Coopers & Lybrand during their 1981 audit. "It is in the best interests of the University to extend the results of the audits and extrapolate them backwards," he added.

"We've pretty much always agreed with Harvard that we would try to reach a settlement to the closest year we could," Kirschenmann said, adding, "We probably would not have found much different if we went back [to previous years], but it seemed to me we should focus our resources on correcting the accounting problems."

Tefft said his office would pay the government $1 million from the University's General Operating Account within 30 days. Ultimately, most of the $1 million will be charged to the Medical School, with a small fraction also made up by the School of Public Health, O'Brien added.

The additional $3.6 million represents money Harvard had been scheduled to receive from HHS to pay for overhead costs on previous grants.