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Recollections differ now as to when Health and Human Services officials realized that mental-health reform spending was out of control. By some accounts, it was October or November 2006, but officials waited until early 2007 to do anything about it.

"I guess we just did not foresee the magnitude of the problem," Wainwright said.

On Jan. 16, 2007, auditors were finally ordered to saddle up.

Dan Gerlach, senior adviser to the governor, was stunned when he learned Jan. 17 about the explosion in spending: "I said, 'Holy cow!' " He notified legislative leaders the same day.

After the audit results were in, Hooker Odom huddled with top officials of her department on Wednesday, April 4. She told a subordinate to poll her Rate Setting Review Board, some of whom had already left for Easter. They agreed to slash the rate paid for community support to $40 an hour.

Hooker Odom, in a memo to the governor two weeks later, described some of the abuses her auditors had uncovered: Providers had been taking children swimming, or to a movie, or out to eat, all for $61 an hour.

They went to the mall, too. A bill from a company in Greensboro showed a worker taking an 18-year-old on a two-hour trip to improve his social skills. "He went to the game room and talked with one of the kids there ... Progress made."

The bill: $122.

A Pinnacle company worked on even more basic skills. "Staff suggests client to get up," one document reads. "Client agreed to get up." Other activity included suggesting eating breakfast and taking a shower. They later went for a ride. The bill was $366.

The state saw bills such as these and cut the rate. The outcry from providers was immediate.

On April 26, the department backtracked, raising the rate to $51.

But the damage had been done: Setting the rate for community support too high, and leaving it there for slightly more than a year, cost taxpayers $118 million.

The overpayments have continued on a lesser scale: The state is still paying high-skill wages but won't start requiring high-skill workers until March 1.

In the last week of April, Hooker Odom began telling subordinates that she would resign to take a job as president of Milbank Memorial Fund in New York, a foundation that studies health policy.

Easley said she had been planning her move for months. He issued a statement praising her.

"She has handled one of the most challenging jobs in the state with great skill," he said.

Assigning blame

Easley has tried to distance himself from mental-health reform. He blames legislators, saying Hooker Odom "vigorously" opposed the sweeping changes approved in 2001.

"It just happened sort of overnight in late October [2001], and we never thought they would do it," Easley told reporters at a December news conference.

Easley blames the agencies formed by county governments, which were partly responsible for keeping an eye on those providers.

"All we are is the banker," the governor told reporters. "We can audit, and we can offer suggestions, but they're not accountable to DHS [Health and Human Services]. DHS has been getting a black eye over the system not working, and they don't have any way to control it."

The state in November hired Mercer Health Benefits LLC for $794,000 to evaluate the county programs. That study is due May 15, in time for the legislature to consider it this summer.

Copeland, representing the county groups, said her members aren't blameless, but she says the governor is off-base.

"The counties did not close up the hospitals," she said. "Let's be clear that the [counties] have no authority. They only administer the state's policies. That's it."

Insko acknowledges that legislators tried to do too much too fast. She wishes they had started the program on a small scale.

But she rejects Easley's recent statement about her reform bill.

"I understand that the governor has said that the secretary opposed it," Insko said, referring to Hooker Odom. "She never told me she opposed it. No one in the department ever told me they opposed it."

Hooker Odom's replacement, Dempsey Benton, is trying to repair the mental-health system. The former Raleigh city manager has cut spending on community support by 19 percent, taken direct control of the state's psychiatric hospitals and won the confidence of legislative leaders.

"This program is going to have to be doing much better in terms of balancing the expenditures with the quality of service," Benton said. "I expect it to be under a microscope."

(Staff writer Michael Biesecker and news researcher Brooke Cain contributed to this report.)

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