During a debate in the House of Lords about civil society and lobbying yesterday, Lord Shinkwin, a Conservative peer and former head of public affairs at the legion, told peers he was "bullied" by the charity’s then head of welfare, Sue Freeth, for refusing to sign off a payment to a parliamentary researcher.
Freeth and the Royal British Legion have both strongly denied the claims.
Shinkwin said the parliamentary researcher in question, whom he did not identify, demanded payment for "meetings arranged, briefings drafted and parliamentary questions prepared" and provided an invoice.
Shinkwin said he provided written advice that no payment should be made, after which he alleged Freeth sent "bullying emails" asking for the payment to be processed.
He said that the then director-general of the charity later sent an email saying he had approved payment.
Shinkwin said the then director-general neither consulted nor informed the charity’s then national chairman about the issue.
He did not identify when the alleged incident took place but said the Royal British Legion’s current director-general, Charles Byrne, was not at the charity at the time and it now had a new management team in place.
Shinkwin said the incident "has to count as the saddest moment of my career".
He said: "The fact is that I was unable to prevent his approval of payment of donors’ money to an individual who should never have received one penny of legion charitable funds that were donated in trust.
"It still haunts me that this happened on my watch as the legion’s head of public affairs and could happen again today at any charity."
Shinkwin said the incident underlined "the compelling need for far greater protection for whistleblowers brave enough to raise legitimate concerns about ethical issues or mismanagement in the charity sector".
In a statement, Freeth said: "The allegations made by Lord Shinkwin in the House of Lords are inaccurate, unfounded and completely wrong. It is very disappointing that Lord Shinkwin has made these claims."
Lieutenant General Andrew Graham, chairman of Combat Stress, also expressed his support for Freeth, who joined Combat Stress in January.
"Sue has my absolute support and confidence, and that of the whole Combat Stress board of trustees," he said. "She is a passionate and committed supporter of veterans who we are proud to have as our chief executive."
A spokeswoman for the Royal British Legion said: "The Royal British Legion has thoroughly searched its books and records and found no evidence that payment has ever been made for parliamentary questions to be tabled on its behalf."
The spokeswoman said the charity did not tolerate bullying or harassment.
"The legion’s whistleblowing procedure enables employees to voice their concerns, in a confidential way, to the right person," she said.
"If an employee raises a genuine concern under this policy, they will not be at risk of losing their job or suffering any form of retribution as a result."