A federal grand jury in South Dakota has indicted five people, two of them former administrators at Oglala Lakota College, for allegedly stealing more than $2.6-million from the tribal institution.

U.S. Attorney Karen E. Schreier announced the 125-count indictment on Thursday. The alleged conspirators were charged with theft from an Indian tribal organization, theft from a federal program, money laundering, and the transportation of stolen money, among other crimes.

Among those indicted were Arlynn E. Knudsen, 41, of Black Hawk, S.D., and John A. Bad Wound, 43, of Rapid City, S.D. Mr. Knudsen was the manager of the college's accounting department in 1991 and served as its vice-president for business affairs from 1991 to 1994. Mr. Bad Wound was accounting manager from 1992 to 1995, and in 1995 he served as acting vice-president for business affairs.

Also indicted were Mr. Bad Wound's wife, Margaret Minko-Bad Wound, and Mr. Knudsen's cousin, Jerry Dean Godfrey, of Omaha. Mr. Godfrey's wife, Marjorie J. Godfrey, was indicted on one count of conspiracy.

Federal officials alleged that Mr. Knudsen, Mr. and Mrs. Bad Wound, and Mr. and Mrs. Godfrey had bilked the college by forming eight bogus office-supply companies, billing the college for supplies it never received, and then directing the college's payments into bank accounts under those companies' names.

They also altered college checks made out to legitimate vendors so that the funds would be diverted into other accounts, according to federal officials. A check for "Xerox," for example, was changed to "Pure Xerox Supply," one of the fake companies they had established, the officials said.

Oglala Lakota College, which serves about 1,100 students and is located on an Indian reservation in southwestern South Dakota, took a major financial hit as a result of the alleged scam.

Thomas ShortBull, the college's president, said the institution was considering filing a civil suit to recover the money. The college's loss amounted to about 10 per cent of its operating budget in each of three years, from 1991 to 1994. The suspects are alleged to have spent the college's money buying stocks and, in Mr. Knudsen's case, settling gambling debts.

With that money, Mr. ShortBull said, "we could have bought more instructional supplies, increased faculty salaries." As it was, he said, the college froze faculty salaries during the time of the alleged scam because it thought its funds had decreased.

Mr. ShortBull, who arrived at Oglala after the alleged conspiracy had broken up, said he had instituted measures to help prevent a recurrence. The college also assisted in the investigation of the matter, which involved four federal agencies.

Mr. Knudsen could not be located for comment on Friday. Mr. and Mrs. Bad Wounds did not return a telephone call. Mr. and Mrs. Godfrey, who also could not be located for comment, were released on their own recognizance Thursday after a hearing in Omaha. They are scheduled to be arraigned on February 27 in Rapid City.