The Welsh government was "often weak" in its handling of grant funding to the defunct race equality charity, the All Wales Ethnic Minority Association, according to a report published today.
A review carried out by the Wales Audit Office criticised the Welsh Assembly’s management and coordination of funding to the Awema, which shut down earlier this year after an investigation by the Welsh government’s internal audit service uncovered "significant and fundamental failures" in its control and governance framework.
The charity had received £7.15m in grant funding from the Welsh government between 2000 and 2011, through departments such as its equalities unit, the Communities First programme and the Welsh European Funding Office.
The audit office’s report said it was unlikely that the Welsh government would be able to reclaim more than £500,000 it believes it is owed by the charity.
Anthony Barrett, assistant auditor general, said: "The Welsh government’s management and coordination of its grant funding to Awema was often weak and its responses to historical concerns about Awema were too narrowly focused.
"By contrast, the Welsh government responded robustly to the concerns that emerged about Awema in December 2011, but dealing with the consequences has been time-consuming.
"While the outcome of the liquidation process is not yet known, it is clear that the Welsh government will not recover most of the £545,966 debt it now believes it is owed by Awema, as this far exceeds the amounts available to reimburse creditors."
A spokeswoman for the Welsh government said: "We welcome this report, which was requested by the Welsh government, and have cooperated fully with the Wales Audit Office in its preparation.
"The report has confirmed there is no evidence that ministers exerted any inappropriate political influence over funding decisions and always acted in accordance with advice from officials.
"It also highlights the swift and robust action the Welsh government took to suspend funding to Awema while protecting those who were delivering programmes through Awema.
"The Welsh government is already acting on the lessons contained in the report, which will build on the work under way to improve the future management of our grants programme."
Naz Malik, the former chief executive of Awema, and Saquib Zia, its finance director, were both dismissed with immediate effect by the charity in February after the government report was published.
Malik allegedly used charitable funds to cover personal expenses including tickets to sporting events and a parking fine. One of the charity’s two directors was his daughter, whose salary increased from £20,469 in 2008 to £50,052 this year.
Zia won a claim for unfair dismissal against the charity at an employment tribunal in August.