The misuse of up to $3.5 million - most of which apparently went to line administrators' pockets at Timpanogos Community Mental Health Center - is among the most blatant and egregious misuses of public money Wayne Welsh has ever seen.

"Because of the number of people involved and dollar amounts they took inappropriately, I think it's one of the worst cases of misuse of public funds I've experienced in my career," Welsh, the legislative auditor general, said in a Tuesday interview.

Welsh told members of the Legislature's audit subcommittee that corrupt business practices and misuse of public money among the top eight employees at Timp Mental Health have cost taxpayers $3.5 million since 1984.

The largest apparent abuse involves youth program director Carl V. Smith, whose 1987 compensation totaled more than $700,000, even though his base salary was only $47,627. The audit said the eight employees have used "questionable internal contracting practices" to pay themselves up to three times their regular salaries.

Responding to the audit, Utah County Commissioner Gary Anderson, chairman of the three-member Timp Mental Health Board, said the board will likely accept the resignations of at least three administrators, including Smith, who submitted their resignations on Monday.

"I am shocked and angry and we will take appropriate action" against the administrators, Anderson told subcommittee members on Tuesday. He said he hopes to recover some of the money.

Anderson said director Glen Brown, administrative services director Craig Stephens and Smith all resigned. The fate of four other employees who were suspended with pay clinical director Richard Spencer and program directors Alan Fife, Jim Schwartz and Derek Timms was to be considered at a board meeting Wednesday afternoon. Another worker, Deanna Westwood, an accounting technician who earned $136,066 in 1987, even though her base salary was $23,406, was also named in the audit, although she has not been targeted for any disciplinary action.

The huge salaries paid to the workers took its toll on center programs, Welsh said. Contract payments to the employees amounts to between 20 percent and 40 percent of some programs. The audit said because many of the programs were developed in-house, it was impossible to determine the impact of the high salaries. Still, the audit said, the high administrative costs necessarily took money away from client care.

The Utah attorney general's office has agreed to take over the investigation of the center because of a possible conflict of interest of Utah County Attorney Steve Killpack, who worked for the center when he was director of county mental competency.

Associate Deputy Attorney General Paul M. Warner could not say whether there will be criminal charges, but he said the "possibility of criminal activity exists." He said the investigation could take many months.

Welsh said many of the problems developed after Brown relinquished virtually all of the day-to-day center operations to Smith.

"Glen did approve the contracts, but on an individual basis, and there were so many of them (more than 600)," he said. "He didn't keep track of how much people were getting. Then Carl Smith signed and authorized the payments. Brown had in a way abdicated his responsibilities for being director."

During Tuesday's meeting, Welsh outlined an astonishing pattern of abuse. In 1987 alone, for example, Smith earned $728,503.72 in total compensation, including salary, contract earnings and car and credit-card allowances. Stephens earned $501,461, followed by Brown with $149,065.

Not all of that was unearned. The base salaries for Smith, Stephens and Brown, for example, total $47,627, $47,690 and $91,069, respectively. And some of the contract earnings as well as car and credit-card allowances were probably legitimate.

Nonetheless, Welsh said many of the expenditures were unjustified. He said the center's staff was allowed to write $3.2 million in "salary supplement contracts" for themselves and other staff. He said many salaries did not require any additional work outside normal business hours. He said the contract work alone by the staffers is equivalent to the work of three full-time people.

"In essence, these employees were paying themselves, repeatedly, to perform their regular duties," said the audit.

The auditors also found that Timms purchased three homes, then contracted with the center to use the homes as 24-hour residential facilities. The center then paid Timms what appears to be an excessive amount in rent, the auditors reported, as well as underwriting the cost of renovations and repairs to the homes.

"That employee rented to the center at higher-than-market cost, then he asked the center to pay for repairs," Welsh said.

Welsh said five of the eight top center employees were given American Express credit cards for virtually unlimited use. He said some of the employees used the credit cards to double-bill travel expenses by reimbursing themselves for the expenses, then paying the credit card bills with center money.

Welsh also said car allowances of $40,000 were also "totally out of line." What's more, Welsh said his audit only concentrated on the eight top officials because of a lack of time. "There were other employees receiving contracts and we haven't had time to review them to see if they were proper," he said.

One positive result from the affair is that audits of three other mental health centers showed they were operating above board, Welsh said.

How could Timp Mental Health get so far out of line? Welsh said the three agencies with oversight responsibilities the Timpanogos Mental Health Board, an auditing firm employed by the board and the state Division of Mental Health were simply caught napping.

Anderson vowed be more diligent in the future and vowed to continue the job started by the auditor general and "go deeper" into the doings at the center.