The commission opened a statutory inquiry into Catz Club last year after a previous investigation into an illegal £5,000 donation by the charity to the Labour Party raised concerns about its financial governance.
The inquiry report, published yesterday, reveals that the charity's founders, Amanda and Stephen Argent, who were also respectively its chief executive and chief finance officer, owned a separate company that sold software to the charity, whose trading name is Schoolfriendetc.
The report does not say how much money the Argents' company, called Schoolfriend.com, received.
"The inquiry considered that the founders, given their role in the charity and that they established Schoolfriend.com, were conflicted and in a position to benefit personally from agreements between Schoolfriend.com and the charity," the report says.
"This would only be acceptable if it was a legitimately incidental benefit. The trustees accepted that a conflict existed but did not consider that this posed a problem for the charity, focusing instead on the valued contribution of the founders."
The report says the similarity in the names of Schoolfriendetc and Schoolfriend.com might have confused people into thinking they were the same organisation.
It also criticises Catz Club for an "over-ambitious" expansion programme. It planned to increase its number of after-school clubs from 37 to 273 in one year, and to 1,270 in five years. But many of them proved unsustainable and the charity ended up relying on loans worth £13m from its US-based chair, Tony Mitchell, to survive. It now has 60 clubs.
Mitchell told Third Sector he felt the charity had handled conflicts of interest better than the commission felt it had. Nevertheless, he accepted the findings.
He said the Argents' company provided a "bespoke educational software package" that helped children's educational development. "We didn't want to do an after-school club that was a baby-sitting service," said Mitchell. "We wanted it to be educational."
Third Sector was unable to contact the Argents, who no longer hold executive positions at Catz Club but are involved on a voluntary basis. Schoolfriend.com has not charged Catz Club for the use of its software since 2006.