Oxfam's leaders are also accused of trying to cover up sex crimes by some of its senior staff members, deployed to Haiti after the devastating 2010 earthquake that killed hundreds of thousands of people.
The aid workers -- including the Oxfam country director at the time, Roland van Hauwermeiren -- were accused of turning a villa rented by the organization into a makeshift brothel, with prostitutes wearing only Oxfam T-shirts.
The Times newspaper in London made the allegations in an investigation published in recent days.
Oxfam received about £32 million (about $44 million) from the government last financial year, according to public records.
International Development Secretary Penny Mordaunt warned Sunday that Oxfam could lose millions of pounds in public funding because of the scandal.
A Downing Street spokesman said Monday that the British government had taken action to enforce a "zero-tolerance approach" to allegations of "horrific behavior" by Oxfam staff. He gave no details on what the actions were.
Oxfam could also face legal action in Haiti. The country is considering pursuing criminal charges, the Haitian chief of mission to the UK, Bocchit Edmond, told CNN on Monday. Edmond said that Oxfam representatives in Haiti would be summoned by the Foreign Ministry.
"We will look at the issue, and hopefully there will be sharing of information, and then I believe there are some grounds for legal actions."
No cover-up, Oxfam claims
A second report by The Times on Saturday said Oxfam failed to warn nongovernmental organizations about the allegations, allowing some of the accused to get jobs at other aid agencies.
The UK Charity Commission told CNN in a statement that Oxfam informed the agency in August 2011 that the charity was conducting an internal investigation related to inappropriate sexual behavior, bullying, harassment and the intimidation of staff. But Mordaunt said the aid organization failed to reveal the scope and key details of the case.
"They let individuals who had undertaken criminal activity, they let them go. They did not tell prosecution authorities, they did not tell their regulator and they did not tell their donors," Mordaunt told the BBC.
Oxfam did not deny the accusations against its staff members, but it denied a cover-up, saying that it launched a swift internal investigation after it became aware of the allegations. Four people were fired and another three resigned, including van Hauwermeiren, the charity said.
"Our primary aim was always to root out and take action against those involved and we publicly announced, including to media, both the investigation and the action we took as a result," Oxfam said in a statement.
Oxfam's own policy prohibits "sexually abusive or exploitative acts being perpetrated" by employees, including paying for sex.
Oxfam has announced it would strengthen its staff vetting procedures and introduce a new whistleblower helpline as part of a package of reforms.
"It is not sufficient to be appalled by the behavior of our former staff -- we must and will learn from it and use it as a spur to improvement," Oxfam's chair of trustees, Caroline Thomson, said in a statement.
'Tip of the iceberg'
On Sunday, the aid agency said it had been "shocked and dismayed" to hear more allegations about the use of sex workers by Oxfam staff in Chad in 2006.
"While we can't corroborate the information from Chad at the moment, it highlights again unacceptable behavior by a small number of people and the need for a sector-wide approach to tackle the problem," Oxfam said in a statement.
Oxfam works with local farmers in Chad to improve their crops and provides water and sanitation services to refugees in local camps, the organization says on its website.
The allegations against Oxfam in two different countries have raised concerns that the problem of sex crimes by aid workers abroad could be widespread.
Mordaunt's predecessor, Priti Patel, shared concerns about a cover-up and wrote in the Telegraph on Monday that the Oxfam scandal was just "the tip of the iceberg."
In an interview with Sky News Patel said: "I did my own research and I have to say I had a lot of push-back within my own department ... that is the scandal."
"People knew about this," she said.
Patel resigned last year after making a secret trip to Israel and holding undisclosed meetings with Israeli officials, setting off a political firestorm. She also said that British nationals accused of wrongdoing while doing charity work abroad with public funds should be tried in the UK.
Oxfam is one of the UK's largest and most prominent aid organizations, operating development programs in more than 90 countries around the world.
It calls itself "a global movement of millions of people who share the belief that, in a world rich in resources, poverty isn't inevitable."
The agency also offers assistance to people after emergencies and disasters.