The lawsuit claimed, as did reporting by Krakauer and "60 Minutes," that Mortenson fabricated that story and others in the book and in "Stones Into Schools."
Mortenson has denied any wrongdoing, though he has previously acknowledged some of the events in "Three Cups of Tea" were compressed over different periods of time.
The yearlong state investigation found that Mortenson's poor record keeping and personnel management resulted in unknown amounts of cash spent overseas or for management costs without receipts or documentation.
CAI promoted Mortenson's books for free, paid for his charter flights and the organization bought thousands of copies of his books to give away, without seeing any royalties, the state found.
Anne Beyersdorfer, CAI's interim executive director, has said Mortenson will remain the face of the charity but not as executive director, and that he is barred from being a voting member of the board of directors as long as he draws a paycheck from CAI.
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