The Charity Commission has told a charity that supports Jewish organisations that it must appoint at least one "fully independent and unconflicted" trustee.
The regulator opened a statutory inquiry in July 2012 into Mayfair Charities Ltd, which registered with the commission in 1968 and works to support Jewish organisations in the UK and abroad.
A report on the commission’s findings says that, after scrutinising the charity’s 2010 accounts, the regulator had concerns about loans made to companies connected with the charity and its trustees.
The trustees of the charity, which had an income of £12.5m and expenditure of £4m in the year ending March 2012, are named in the report as Mr D Davis and two brothers, Benzion Shalom Eliezer Freshwater and Solomon Israel Freshwater.
The Freshwater family also runs a wider group of companies called the Freshwater Group, the report says.
Davis works as a director for three out of four of the subsidiary companies and a number of companies in the Freshwater Group, it says.
The commission was concerned about how the charity managed conflicts of interest and questioned the trustees in December 2011 after examining its 2010 annual consolidated accounts of the charity. Based on their response, the commission then decided to open a statutory inquiry into the charity.
The inquiry investigated how the "complex network" of property-related financial arrangements between the charities, its trading subsidiaries and companies connected to the trustees worked for the benefit of the charity.
The charity owns properties that are rented out, both commercially and residentially, at market rate and uses the income to make grants to charitable causes. The commission concluded that the arrangement did benefit the charity.
It investigated the loans, including one made to by the charity to a subsidiary, which generated an income of 8 per cent for the charity.
The regulator ruled that in order to meet their legal duties, the trustees should have been reviewing the terms and conditions of the loan and whether full repayment or some capital repayments should be made. The commission said the trustees have agreed to do so.
The report says the inquiry did not find any significant failings in the administration of the charity. But as a result of its findings the charity must appoint at least one independent trustee and the trustees must periodically review the charity’s relationship with its subsidiaries and connected companies, the regulator concludes.Michelle Russell, head of investigations and enforcement at the commission said: "This case is a timely reminder to all charities to be alert to and deal with conflict of interest situations.
"Conflicts of interest can lead to decisions that are not in the interests of the charity, which damage its reputation and public trust and confidence in the charity. It may mean those decisions are legally invalid or open to challenge."