The Charity Commission will scrutinise the accounts of the Society Network Foundation over what a spokeswoman for the regulator said "appears to be the transfer of restricted funds to unrestricted funds".
The Office for Civil Society, a major funder of the charity, said it was also looking into whether funds had been misused.
SNF is the charitable arm of the Big Society Network, which was launched by David Cameron, the Prime Minister, in 2010 to "support and develop talent, innovation and enterprise to deliver social impact".
It received a grant of £199,900 in 2012/13 from the Office for Civil Society through the Social Investment Business for the now cancelled children’s fitness project Get In, spending £134,466 of this and transferring the remainder, £65,434, to unrestricted funds.
A spokeswoman for the Charity Commission said: "The commission is to carry out some further scrutiny of the Society Network Foundation's accounts, regarding what appears to the transfer of restricted funds to unrestricted funds. We are yet to establish whether and what regulatory steps may be taken."
A spokesman for the Social Investment Business said: "We work closely with our investees to ensure that our funds can be utilised for the purpose intended, and as such minor changes can often occur. However, any variations will always be to enhance the agreed purpose and will always be agreed in writing. In this case, we can confirm that no variation has been agreed with the Society Network Foundation."
The SIB spokesman said that it too was reviewing the charity’s annual accounts "as part of our standard grants management process".
Giles Gibbon, a trustee of SNF, said the charity had not done anything wrong. "The project was cancelled by the Cabinet Office: after that, it was set out that the money would go towards our other charitable aims," he said.
"To us there is no issue here at all. There’s nothing untoward. If the Charity Commission wants to come and have a look, by all means feel free."
Last summer, Steve Moore, the chief executive of BSN, said the organisation had been the victim of "gossip and innuendo" over suggestions that it attracted funding through favouritism and patronage.