The report from the council's Stronger Communities Scrutiny Committee said that NCompass, which receives council and central government funding to support local infrastructure organisations, had not lived up to expectations.
"There is a strong feeling within the sector that NCompass has not achieved the impact required of the countywide infrastructure organisation, either in support of infrastructure organisations or by promoting transparency and good governance," said the report.
Although councillors had found no evidence of fraud, "poor working practice" had made the fraudulent use of public money possible, the report said.
Brian Binley, Conservative MP for Northampton South, has set up his own inquiry.
Stuart McQuade, president of NCompass, rejected the accusations. He said the firm, formed by a consortium led by the Northamptonshire Lesbian, Gay and Bisexual Alliance, had been the victim of "rampant homophobia".
"We believe we are the victim of punitive measures designed to overthrow us, and that the council is guilty of victimisation," he said.
"We are concerned that there appears to be no evidence in the report to substantiate the vague statements, allegations and insinuations that are potentially defamatory and libellous," McQuade added.
"The issue of bias, vested interests and preconceived agendas running through the report is also a matter of major concern."
A council spokesman said the brief for the report was to establish whether the voluntary sector was receiving adequate support from the council and other agencies.
"It is inaccurate to infer any other motive behind such a report, which is one of many scrutiny reviews that take place on a many issues during the year," he said.