The former vice chair of a race equality organisation says the people running it should stand down.
The All Wales Ethnic Minority Association (Awema) faces questions over spending of EU and Lottery funds.
Its chief executive Naz Malik was given internal warnings after a highly critical independent review.
Dr Rita Austin, newly appointed chair of the Swansea-based organisation, declined to comment on the allegations which prompted Dr Sibani Roy's protest.
Dr Roy resigned as a vice chair of Awema in protest at the internal culture of the organisation, saying she had a "total lack of confidence" in Mr Malik and Dr Austin.
"I do believe that they lack either the ability or indeed the will to run the organisation in an acceptable manner," said Dr Roy, a Plaid Cymru councillor in Colwyn Bay.
"Both of these individuals have, I believe, acted outside any normal standards of behaviour that is expected by the Charity Commission and funding bodies.
"In doing so they have acted to the detriment of Awema and its work."
Several other trustees have also resigned from the Awema board in recent weeks.
Dr Austin declined to comment on the allegations, but confirmed Mr Malik was still at work.
She added: "The Welsh government is leading an internal audit investigation and we will await their conclusions."
In a report she wrote for the Charity Commission, she says: "It was clear to me on close and considered reading of the CEO's response to allegations that he had as much admitted to actions in two respects which could be construed as gross misconduct."
It is understood a panel of trustees agreed to issue Mr Malik with both a written and oral warning as a result.
Concerns have been raised about whether public money allocated to Awema has been properly spent, leading to the Welsh government's inquiry.
A spokesman said: "The Welsh government including the Welsh European Funding Office, co-ordinating with the Big Lottery Fund, has resolved to instigate an investigation to ensure that the public funding which has been provided has been properly spent and can be accounted for.
"Welsh government officials have been liaising with South Wales Police regarding the allegations."
The organisation has received £8.4m in European funding for a project to promote employment for people from ethnic minorities in west Wales and the valleys.
The chair of the assembly's Public Accounts Committee, Darren Millar, has also written to the Auditor General for Wales asking the Wales Audit Office to investigate.
A confidential internal report written for the Awema board last month by Paul Dunn, a retired chief executive of an equality body in England, concluded that Mr Malik had authorised inappropriate payments, expenses and purchases "which may constitute gross misconduct".
It also warned there is an inherent conflict of interest in Awema arising from the employment of three Malik family members and volunteering by other family members.
And it says a number of key policies, including remuneration and expenses, as well as recruitment and equal opportunities, were not being followed.
A Charity Commission spokeswoman said: "The Charity Commission has received a serious incident report from the trustees of the charity the All Wales Ethnic Minority Association.
"We are currently assessing information around that report to determine what, if any, regulatory role there might be for the Commission.
"Please note that this does not mean we are investigating the charity."