The Federal Government's chief Indigenous advisor has flagged a radical overhaul of the body that regulates Aboriginal corporations.

Former federal Labor president Warren Mundine says the Office of the Registrar of Indigenous Corporations (ORIC) needs to be reformed to become tougher.

He says everything is on the table - including bringing Indigenous corporations into the mainstream so everyone is governed by the same laws.

Tonight's Four Corners program explores claims of mismanagement and misuse of funds, which crippled two successful Indigenous organisations in the Northern Territory, one of them fatally.

One complaint in both cases was that the regulator, ORIC, did not intervene quickly enough.

Former Jawoyn CEO accused of misusing association's funds

Four Corners has revealed allegations the former chief executive of the Jawoyn Association Aboriginal Corporation spent hundreds of thousands of dollars of the association's money on goods and services for himself.

The association was set up as registered charity with the main aim of poverty relief for its members.

Preston Lee denies the allegations made by former Jawoyn employees, who allege it was not uncommon for him to use purchase orders worth $1,000 a day.

Former Jawoyn pilot Chris Morgan has also told Four Corners Mr Lee used $300,000 to $400,000 of the association's helicopter time.

"There was the girlfriends that he would want me to take out, him and his girlfriends, or obviously one girlfriend at a time, take them out to Arnhem Land," Mr Morgan said.

"He's, to be honest, just trying to big-note himself, like it was his own aircraft. He used to call me, refer to me as his pilot, I'd pick him up from his house."

Former employees of Jawoyn also allege Northern Territory MLA Larisa Lee told them to cover up their former CEO's misappropriation of funds during her election campaign last year.

Preston Lee is Ms Lee's brother.

Ray Whear has told Four Corners that Ms Lee saw the evidence, but told him to keep the information quiet because she was campaigning for her seat at the time.

"Larisa specifically said, 'I won't get elected and I'm not going to have that'," Mr Whear said.

The association's chairman, Ryan Baruwei, alleges it was Mr Whear and former CEO Wes Miller who stopped the evidence going to the board.

ORIC has decided it will not pursue legal action in relation to allegations of fraud, because it found insufficient evidence.

Mundine: 'Money has disappeared'

There are more than 5,000 incorporated Indigenous entities across Australia, about half of which are under ORIC's watch and governed by the Corporations Aboriginal and Torres Strait Islander (CATSI) Act. Most are not-for-profit organisations.

The top 500 Indigenous corporations last year generated a combined income of $1.6 billion and employed more than 11,000 people.

Mr Mundine, who will chair Prime Minister Tony Abbott's new Indigenous Advisory Council, says building stronger governance is essential for prosperous, functioning communities, but in many cases it has failed.

"They've let some people who are sitting on boards and corporations and community organisations get away with blue murder, when the biggest amount of people who have suffered in that are Indigenous people," Mr Mundine said.

"They didn't get the service they deserved, money has disappeared, there's a whole nepotism that's happened and there's a lot of Aboriginal people who have been cut out of that.

"By taking this kid-glove approach and trying to be kind to Aboriginal people we've made the situation worse."

ORIC, which focuses on training and building capacity in financial literacy and governance, conducted its first successful criminal cases under the CATSI Act last year.

The full story will be on Four Corners tonight on ABC1 at 8:30pm.