RALEIGH — The financially troubled Mental Health Association of North Carolina is getting out of the business of providing care to hundreds of people.

The association, one of the state's largest private providers of group homes and treatment programs, lost its accreditation Monday, cutting off the group's access to federal Medicaid reimbursements.

The association had suffered severe financial problems in recent months, laying off employees and cutting the wages of those who remained. The loss of accreditation could prove to be the death knell of North Carolina's oldest advocacy group for people with mental illness.

On Thursday afternoon, a worker declined to comment as she left MHA's Raleigh offices, carrying a box of belongings and a potted plant. Inside, the receptionist's desk was vacant, the halls dark.

State officials scrambled this week to ensure that hundreds of people who depend on the association for treatment and housing aren't left in the lurch.

"MHA is going out of the service delivery business," said Leza Wainwright, the director of mental health at the state Department of Health and Human Services. "What we're trying to do is make sure that the transition of MHA clients to other providers is as seamless as possible."

Wainwright said MHA's remaining group homes and treatment programs will be assumed by another large provider, Easter Seals UCP of North Carolina.

Efforts to interview Christie Foppiano, MHA's interim executive director, were unsuccessful. In an e-mail Thursday night, Foppiano said she had been very busy.

The man who had helped lead the nonprofit association for the past 24 years, John Tote, was named in May to replace Wainwright, who will retire Sept. 1, as the state's mental health director. Tote was forced to withdraw from the high-profile appointment less than a week later, after news reports that MHA faced more than $1.5 million in IRS liens related to years of unpaid payroll taxes.

John S. McKee III of Lumberton, chairman of the MHA board, said Thursday that Tote hid the organization's financial problems.

"You couldn't tell from the financial statements we were provided that there was any trouble," said McKee, the retired director of a mental regional mental health program. "We tried to call a board meeting last month and couldn't get a quorum. When things get bad, people don't want to participate."

McKee said the executive committee, which consisted of him and the board secretary, met by telephone and authorized Foppiano to "do what she needs to do" to save MHA. McKee said he couldn't remember the name of the secretary.

"I don't really know her," McKee said. "I'm on the board because I'm a friend of John's. That's how all of us got on there."

Tote could not be reached for comment Thursday. In prior interviews, he has declined to discuss the situation at MHA, saying that he is no longer affiliated with the group.

Money lost, pay raised

Federal tax returns indicate MHA has been losing money for years, even as Tote's hand-picked board approved raises for him.

The first liens for unpaid taxes were filed against MHA in 2006, according to records on file with the state. That same year, Tote received $172,573 in salary and another $43,143 in benefits and pension contributions, according to the group's 2006 tax return.

The next year, Tote's salary rose to $181,034, as the association reported a net loss on its tax return of more than $920,000.

In addition to Tote, at least five more executives at the nonprofit organization were paid total compensation in excess of $80,000, while some individuals listed as independent contractors received annual payments as high as $403,328.

The 2007 return was not filed with the IRS until June 2009, and it remains unclear as to whether MHA ever filed its tax returns for 2008 or 2009.

Allied with Easter Seals

Last month, MHA announced a new "strategic alliance" with Easter Seals. After the Maryland-based Council on Quality and Leadership removed its accreditation from MHA on Monday, Wainwright said the state has been coordinating with Easter Seals to take over many of MHA's remaining service programs. The U.S. government requires groups that provide mental health services to have accreditation from the council or another accrediting body in order to get federal insurance reimbursements.

The remaining MHA programs that Easter Seals will take over include 266 apartment units for people with mental illness and 12 group homes around the state with 64 current residents. Easter Seals will also take over four treatment teams serving 320 patients and a psychosocial-rehabilitation program that serves 44 patients.

Ann Akland, a past president of the Wake County chapter of the National Alliance on Mental Illness, said MHA's fiscal collapse is a terrible loss.

"There aren't that many mental health advocacy organizations in the state," Akland said. "John Tote was the leader as far as being out there and speaking for families and consumers with mental illness. For MHA to have the problems that it has casts a big shadow on the whole mental health community."

michael.biesecker@newsobserver.com and 919-829-4698