WA's second largest native forest saw mill Nannup Timber Processing breached its contract with the Forest Product Commission by exporting unprocessed marri logs overseas.
WA Forest Alliance uncovered the news which resulted in the commission launching an independent investigation.
FPC business services director Andrew Lyon said the investigation found significant irregularities in the Nannup Timber Processing's records of marri log receival and exports.
"The investigator also recommended that the FPC consider further investigations be undertaken into the movement of jarrah supplied by the FPC to NTP," he said.
The company had its marri log contract with the FPC terminated and is now being investigated a second time to determine the movement of jarrah supplied by the FPC.
"Jarrah is currently not being delivered to NTP and jarrah deliveries will not resume prior to the conclusion of the independent investigation into allegations of Jarrah exports," Mr Lyon said.
Nannup Timber Processing owner Vince Corlett did not respond to a request for comment.
WAFA convener Jess Beckerling said this was the latest scandal surrounding native forest logging and exposed a failure to regulate the native forest logging industry.
Forestry Minister Dave Kelly said the government took these issues very seriously.
"We expect everyone in the timber industry to play by the rules to ensure we are protecting the WA forestry industry and local jobs."
South-West MLC Diane Evers said she would continue to seek the end of logging and clearing of our native forests and supported WAFA's call for an inquiry.
"The example seen in Nannup - and also in Greenbushes, where thousands of tonnes of high-value jarrah were sold by Auswest to Simcoa for low-value use - show systemic failings," she said.
"These are WA's two largest mills and their highest-value assets have become their state contracts, partly because they are not able to sell logs for the price it costs to process them. Right now the industry is operating at a $1.6 million loss before tax."
Environment minister Stephen Dawson said the Forest Management Plan 2014-2023 was a robust policy framework that struck a balance between conservation, forest timber harvesting, honey production, tourism and recreation.