The Welsh government has suspended funding to a community regeneration charity amid allegations of the misuse of public funds.
But the charity, NSA Afan, based in Port Talbot, south Wales, said it had been the victim of vexatious allegations made by a former finance officer at the charity, who has been arrested on suspicion of stealing from the organisation.
The charity was due to receive £526,800 in grant funding to deliver the Welsh government’s Communities First programme in Sandfields and Aberavon up to 31 March, but was told on 12 December the funding had been suspended with effect from 1 December.
The charity said it was continuing to deliver the services, which include community learning and employability schemes. But Ian Isaac, its chief executive, said it was rapidly approaching the point at which it would be unable to pay staff salaries.
He said 16 members of staff would be directly affected and the organisation, which has a total of 38 employees, could be forced to close.
A Welsh government spokeswoman said: "After initial investigations into allegations concerning possible misuse of public funds at NSA Afan, we have suspended funding while further investigations are undertaken.
"We are exploring ways to safeguard the provision of services, but it is important that we exercise our duty to protect taxpayers’ money from potentially inappropriate use."
But Isaac appealed to the Welsh government to reinstate the funding until the allegations had been proven or dismissed.
He said he believed the claims against the charity had been sent to the government by the charity’s former finance officer, who was suspended in November 2015 on suspicion of theft before resigning the following January.
In a statement, the charity said: "NSA Afan refutes these allegations on the grounds that they are vexatious and designed to interfere with ongoing police investigations into accusations of theft and fraud made by NSA Afan itself against a former finance officer who left the organisation over a year ago."
A South Wales Police spokeswoman confirmed that a 35-year-old woman from the Port Talbot area had been arrested on suspicion of theft on 11 August after a complaint was made by NSA Afan, and had been bailed while the police investigation continued.
Isaac said the charity was cooperating fully with the government’s investigations and had passed the allegations made against it to the police.
A Charity Commission spokesman said: "The commission is aware of serious concerns regarding the financial management of the charity and an ongoing police investigation.
"The commission has opened a case and is working closely with the Welsh government to establish what regulatory action may be required."