Mark Davies, 47, was arrested by officers last week and has been released on police bail.
Mr Davies works at Cyrenians Cymru, which offers a range of services to homeless and disadvantaged adults.
A South Wales Police spokesman said the force's economic crime unit was carrying out the investigation.
Cyrenians Cymru said in a statement that Mr Davies no longer worked for charity and added it was "actively pursuing recovery of all losses".
A spokesperson for the Charity Commission said it received a serious incident report from Cyrenians Cymru.
"We have contacted the charity to explain that we will be asking for more information, and an update on the developing situation," they added.
The head of finance at a homeless charity in Swansea has been arrested on suspicion of fraud, understood to be worth £800,000.