The family of a man killed by a psychiatric patient released from mental health care - despite threatening to kill someone - have laid a complaint against the Auckland DHB with the country's top health watchdog.

Matthew John Ahlquist, 34, was found not guilty of the murder of Colin Edward Moyle on the grounds of insanity and sent to the Mason Clinic as a special patient.

Ahlquist threw boiling water on Mr Moyle, 55, bludgeoned him with a spade and set him alight on the front lawn of Mr Moyle's Auckland home in April 2007 because he thought he was "demonic".

Two expert psychiatrists later diagnosed Ahlquist with paranoid schizophrenia and Justice Geoffrey Venning ruled he was not guilty by reason of insanity in December.

Documents released to the Weekend Herald reveal "evidence of unacceptably poor clinical judgment and practice by some medical and nursing staff" into the care of Ahlquist.

The Office of the Ombudsmen forced the Auckland DHB to release the full report of the external review into mental health care - after the suicides of three patients and the death of Mr Moyle - after the board had refused for more than 12 months.

The report cites "convincing evidence" of bullying in the mental health clinic, and a lack of accountability, and criticised the practice of an unnamed psychiatrist as "idiosyncratic", "laissez-faire" and "at times unsound".

Staff had made statements to the report authors such as: "We can enable a patient to choose to commit suicide" and "We won't ensure that electrical cords are out of the way, as patients will find some other way of doing away with themselves".

Said the report: "It is unacceptable that staff of a unit dealing with patients who by definition are not in their well state accord patients this level of decision making."

Staff failed to collect an adequate history of patients in order to make full risk assessments, something that is clear in the case of Ahlquist.

Now, Mr Moyle's family have laid a complaint with the Health and Disability Commissioner, as the Auckland DHB has stopped mediation talks.

Commissioner Ron Paterson confirmed a complaint had been laid but said it had not been decided whether the matter would be investigated further.

Leaked ADHB documents reveal a string of errors in Ahlquist's care. The report reveals he had been receiving psychiatric treatment since being diagnosed with schizophrenia, aged 23. By 2004 he had been identified as having aggressive behaviour towards his parents, and the following year was admitted to Te Whetu Tawera under the Mental Health (Compulsory Assessment and Treatment) Act.

During his time at the unit he threatened to kill staff but a psychiatrist discharged him to the care of the homeless team.

By the end of 2006, Ahlquist was transferred to St Lukes Community Mental Health Centre. The St Lukes psychiatrist, involved with Ahlquist since his treatment began, wanted him to be detained and given anti-psychotic drugs, a diagnosis the homeless team psychiatrist disagreed with.

In March 2007, Ahlquist was readmitted to Te Whetu Tawera, where staff again considered compulsorily detaining him. The report says Ahlquist told staff he wanted to kill somebody but then became guarded, insisting he made the statement because he was "off his head on painkillers". He was admitted informally but was not diagnosed as being psychotic and was discharged 12 days later after getting drunk in the ward.

Ahlquist's family expressed their anger at the "inappropriate discharge" and a few weeks later, Mr Moyle was dead.

Dr Clive Bensemann, director of ADHB mental health services, and Fionnagh Dougan, general manager of clinical services, declined to comment on the case of Ahlquist, pending a possible coroner's inquest.

Both agreed the external review was critical but pointed out that most of the report recommendations had been implemented.

Ms Dougan confirmed that some staff had resigned in the wake of the report, but could not say who.