Neil Niehorster admitted hiding the invoices to the borough's social services director, Joyce Moseley, two weeks ago.
A 'devastated and ashamed' Mr Niehorster resigned soon after. He said he was fearful of admitting to the overspend because he felt insecure in his job. There is no question of fraud having been perpetrated.
Hackney officials are mystified as to how one manager was able to conceal such a large financial commitment within his 1995-96 budget.
An inquiry was set up in August but the council remained in the dark until Mr Niehorster confessed.