THIS REPORT INVESTIGATES NEW YORK STATE'S MANAGEMENT AND OPERATION OF THE LOCAL ASSISTANCE DRUG ABUSE TREATMENT PROGRAM. THIS PROGRAM PROVIDES LOCALLY-DESIGNATED, COUNTYWIDE GOVERNMENT AGENCIES WITH STATE AID TO ASSIST APPROVED PUBLIC OR NONPROFIT AGENCIES IN CONDUCTING DRUG ABUSE TREATMENT AND/OR PREVENTIVE EDUCATION PROGRAMS. THE REPORT IDENTIFIES SOURCES OF EXISTING INEFFICIENCY AS WELL AS INSTANCES OF POTENTIAL INEFFICIENCY IN THREE CATEGORIES OF STATE INVOLVEMENT--APPLICATION PROCEDURE, AUDIT AND REVIEW, AND GRANT STRUCTURE. IN PARTICULAR, IT SUGGESTS THAT PLANNING, MANAGEMENT, AND EVALUATION EFFORTS ARE SEVERELY INHIBITED BY THE YEAR TO YEAR FUNDING AND ENSUING CONTRACTUAL OBLIGATIONS PLACED UPON LOCAL AGENCIES; THAT THE AUDIT AND REVIEW PROCESS IS CONCERNED WITH INAPPROPRIATE INDICATORS OF PROGRAM EFFECTIVENESS AND TOO COARSE INDICATORS OF PROGRAM EFFICIENCY; AND THAT THE MAINTENANCE OF LOCAL EFFORT PROVISION IN THE GRANT STRUCTURE CREATES A SET OF BEHAVIORAL INCENTIVES WITH THE POTENTIAL FOR COUNTERPRODUCTIVE EFFECTS. TABULAR DATA ARE INCLUDED. (AUTHOR ABSTRACT MODIFIED--MJW)