Greg Mortenson, who wrote the best-selling book "Three Cups of Tea" about his work, will also step down from the board of his charity 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 "failed to fulfill his responsibilities" to his Central Asia Institute (CAI), but that the charity was worth saving.
The probe by Montana Attorney General Steve Bullock followed a CBS television 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," which has sold more than four million copies since its 2006 release, Mortenson tells the stirring story of how he was rescued and nursed to health in the remote Pakistani village of Korphe after a failed climb in 1993 of the mountain K2.
He 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 Mortenson "had significant lapses in judgment" that caused donations to CAI to be spent on family flights, clothing and Internet downloads, Bullock said in a statement.
He said Mortenson would be removed "from any position of financial oversight" and as a voting member of CAI's board of directors, though the author "will be allowed to continue in a role that best complements his goals as they pertain to CAI's mission."
"Despite the severity of their errors, CAI is worth saving. Its pursuit remains admirable, and it still has significant assets to advance its cause and fulfill the donors' intent," Bullock added.
Mortenson, who has resigned, has agreed to repay "in excess of $1 million" to the charity for financial issues related to his books and travel on CAI's accounts, the attorney general's office said in a report.
Bullock said an exact amount was not yet known due to pending financial reviews for 2006-2009.
While at the helm of CAI, which he co-founded, Mortenson spent nearly $2 million on charter flights paid through the charity's credit cards and other funds, according to the attorney general's report.
Yet 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.
CAI paid the travel and promotional costs associated with these public appearances, even as many of the event sponsors were paying a separate, additional fee for travel costs.
The report said Mortenson was "double dipping" prior to the investigation, as he had not reimbursed CAI for travel expenses he had already received from event sponsors.
"His travel expenses were, in many cases, paid twice: by both CAI and event sponsors," it explained.
But it noted that in the months leading to the media investigations into his activities, Mortenson began paying for his own travel.
The investigation pointed to a significant lack of financial accountability, with vast amounts of cash spent overseas without supporting receipts and other documentation.
And 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 attorney general's office said.
Yet the charity had good financial standing, with $23 million in reserves as it had cashed a lot more donations than it spent.
In 2009, CAI said it ran 54 schools in Afghanistan, with 28,475 pupils, most of them girls.
But CBS television's "60 Minutes" program last year said many of the schools supposedly run by Mortenson's charity had never opened, and it had visited many of the schools only to find them deserted or operating without links to Mortenson. The Montana probe did not delve into those issues.
