Trustees at one of Scotland's largest charitable trusts have rejected proposals to increase the board's independence from the local council.
The Shetland Charitable Trust, which has an annual income of £18m and assets of more than £200m, was told two years ago by the Office of the Scottish Charity Regulator to reform its board to increase its independence.
But the board, which includes 21 Shetland Islands councillors and only two other trustees, has refused to make the required changes.
At a board meeting held last week, councillors voted down proposals for a new governance structure made by one of the two independent trustees, John Scott, the lord lieutenant of Shetland.
Scott proposed a governance structure that would have allowed the island's inhabitants to elect 10 trustees and would reduce the number of councillors on the board to three.
The OSCR wrote to the trust last week, telling it that it was disappointed with the pace of change.
"We have been engaging with the charity for more than two years now and are disappointed with the lack of progress in resolving key governance issues," the OSCR said in a statement.
"In light of this, we have set out clearly our requirements under an enhanced monitoring programme and we will be maintaining active oversight of the charity."
Scott said: "The OSCR obviously has serious concerns and has made it clear they expect us to make changes.
"There are obvious conflicts of interest, as the trust has regularly funded or co-funded large council projects, but this has not been acknowledged by councillors."
Audit Scotland has refused to give the council's accounts a clean bill of health for several years, largely because it believes the council effectively controls the trust and should consolidate the charity's assets onto its balance sheet.
It has also investigated whether charitable funds controlled by the trust have been used to underwrite statutory services.
In a report released last month, it said the council had "serious problems with leadership, vision and strategic direction, governance, financial management and accountability".
A trust spokeswoman said that her organisation was cooperating with the OSCR and had no further comment to make.