Dee Stitt, CEO of the community-based-organisation, has been embroiled in criticism after an interview he gave to The Guardian, in which he launched a foul-mouthed attack on the UK Government.
The leading UDA member also claimed his North Down flute band are “our homeland security ... here to defend north Down from anybody”.
In a statement, the board of Charter NI said it was “deeply disappointed with and greatly concerned” by the comments.
It also said it was “addressing this matter internally”.
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However, SDLP MLA Nichola Mallon has branded the organisation’s response to Mr Stitt’s conduct as “unacceptable” and called for his resignation.
She added: “The SDLP is calling for the immediate suspension of public funding to Charter NI until a full and independent review is conducted into how the organisation is governed and organised.”
Urging “decisive action” be taken, she added: “If funding is not suspended, the first and deputy first ministers are sending a clear message that the comments of this organisation’s CEO and the inaction of its board in response is good enough. This is a dereliction of political responsibility.”
The Northern Ireland Executive last month awarded grant of almost £2m to Charter NI.
Ms Mallon added: “The continued wall of silence and lack of action from the first and deputy first ministers in response to Dee Stitt’s conduct, given the fact that they have just awarded his organisation £1.7m in public money, is totally unacceptable.”
In a statement, the board of Charter NI said Mr Stitt has “expressed sincere apologies for his lack of judgment on this occasion”.
It added: “For several months we have sought to support our chief executive in the face of persistent unsubstantiated allegations. Despite this pressure he has continued to effectively oversee the work of Charter NI as it achieves continued success through positive project outcomes.”
On today’s Stephen Nolan radio show, DUP MP Sir Jeffrey Donaldson said he understood Mr Stitt had stepped aside.
However, when asked by the News Letter, Charter NI would neither confirm nor deny this.