Greg Mortenson, who wrote the best-selling "Three Cups of Tea" account about his work, has also agreed to resign from his charity's board for "financial transgressions" in a settlement reached with the Montana attorney general.

A year-long investigation by the attorney general's office found Mortenson had mismanaged his Central Asia Institute (CAI), with millions of dollars of donations spent on charter flights, family vacations and personal items.

The settlement was a major setback for the philanthropist once widely praised for his work, which even the US military upheld as having useful applications for its counterinsurgency campaigns.

The probe by Montana Attorney General Steve Bullock followed an expose last year alleging that some of the most dramatic episodes in Mortenson's best-selling memoir and its popular sequel "Stones into Schools" were fabricated and largely served as a conduit to self-enrichment.

In "Three Cups of Tea," Mortenson tells the stirring story of how he was rescued and nursed to health in a remote Pakistani village after a failed climb in 1993 of the formidable mountain K2.

The 2009 Nobel nominee writes that as he recovered, he promised villagers to come back and build a school, a decision that gave birth to his now famous campaign.

But Bullock said that following "significant lapses in judgment," Mortenson could no longer hold "any position of financial oversight" or serve as a voting member of CAI's board of directors, though he can keep a non-executive role.

"Despite the severity of their errors, CAI is worth saving," Bullock added.

CAI executive director Anne Beyersdorfer said the group disagrees with some of the report's analysis and conclusions but "we look forward to moving ahead as an even stronger organization." She said Mortenson would be involved in CAI's future.

Mortenson, who resigned as executive director last year, has repaid $495,000 of $1.05 million owed to CAI, leaving him with $560,000 to repay over three years because he has "insufficient financial resources" to pay it all at once, according to the attorney general's report.

The investigation pointed to a significant lack of financial accountability, with vast amounts of cash spent overseas without supporting receipts and other documentation as Mortenson's expenses went largely unchallenged by CAI's board.

In one of the most egregious cases, CAI spent about $3.96 million buying Mortenson's books -- largely at full price from online retailers -- to donate them without using his publisher's discount.

Mortenson never abided by a CAI agreement requiring him to donate the equivalent of the royalties he made from the purchases or split the $4.93 million CAI paid to promote and advertise the books.

The charity spent nearly $2 million on charter flights to maintain Mortenson's busy speaking schedule until he started paying for his own travel in the months leading to the April 2011 media investigations into his activities.

The report said Mortenson was "double-dipping" prior to the investigation, not reimbursing CAI for travel expenses despite receiving an honorarium from event sponsors.

And he pocketed nearly all of his speaking fees. At one point when his engagement fees ranged between $25,000 to $30,000, all but $7,500 went to Mortenson.

Among the "substantial" expenses Mortenson charged to the charity he co-founded were "LL Bean clothing, iTunes, luggage, luxurious accommodations, and even vacations," according to the report.

Yet Mortenson was not alone in making unaccounted charges to CAI's accounts.

The charity's credit card statements showed "questionable charges" by other employees at restaurants, bars and spas, as well as on health club dues and gifts, the report said.

But CAI had good financial standing, with $23 million in reserves as it had cashed a lot more donations than it spent.

CAI has helped communities build over 180 schools, and supports 56 more. It has also helped build 30 women's vocational centers.

But CBS television's "60 Minutes" program last year said many of the schools supposedly run by Mortenson's charity had never opened, while others were deserted or operating without links to Mortenson. The Montana probe did not delve into those issues. (AFP)