The regulator received a complaint about the charity, which has the objects of "relieving poverty, distress and suffering among people in any part of the world", in December 2012.
The commission inspected the charity’s books and records and met its trustees twice in 2013.
Having become "increasingly concerned about the trustees' continuing failure to properly account for the charitable expenditure of the charity and properly manage conflicts of interest", according to a press statement, a statutory inquiry was opened on 3 February, the commission said today.
The regulator said the inquiry would focus on whether funds sent overseas had been used properly, whether trustees had complied with their duties, if trustee decision-making had been sufficiently robust, including with conflicts of interest, and to what extent there had been mismanagement or misconduct on the part of the trustees.
Insaan Relief’s website shows current projects include providing safe water, schools and food in several countries in Africa and Asia. It also encourages giving through the two Muslim traditions of voluntary charity (sadaqah) and obligatory charity (zakat). Insaan is the Arabic word for human. Despite certain Islamic aspects, the charity does not mention Islam or religion in its objects.
It had income of £454,133 in the year to 30 June 2013, all coming from voluntary donations. It paid out £296,054 in grants. Of £149,065 of support costs, £83,283 was spent on marketing costs, and consultancy fees, wages and salaries combined to make a total of £35,926, its accounts show.
This was the charity’s second-ever set of accounts; having registered as a charity on 6 January 2011, it received income of £212,241 in its first 18 months of operations.
Humayan Hashmi, one of the five trustees of the charity, said: "Although any inquiry or investigation is a source of concern, we are treating this investigation as an opportunity to review the way we work and to make improvements to our systems and processes where these may be necessary.
"We expect to work closely with the commission and to use this process to put us in a better position to serve more people effectively in future years."