The chair of the Asda Foundation, formerly a senior executive at the supermarket chain, has resigned after police were called in to examine why payments of up to £180,000 were made to a non-charitable dance company of which he was a director.

Paul Kelly left his role as vice-president of corporate affairs at Asda in September; he also resigned as chair of the foundation in the same month, according to its accounts. In 2013 the foundation had an income of £8.6m and spent £8m on grants to a wide range of charities and good causes across the UK.

A spokesman for the foundation said that up to £180,000 was paid from the charity to Murley Dance between October 2013 and May 2014 in several payments. This money, originally intended for people affected by flooding in Somerset and elsewhere last winter, was paid to the dance company without the knowledge or authority of the rest of the charity’s 12-person board.

According to the company’s website, Kelly is the company’s administrative director. It is understood that David Murley, founder and artistic director of the firm, is his partner.

A payment of £20,000 is recorded in the charity’s accounts for 2013 – but while the related-party transactions section of the accounts notes this "common directorship", it makes no note of any other relationship. This would not be required by law, but it would be considered best practice.

A spokesman for the charity said: "The trustees of the Asda Foundation took this matter incredibly seriously. After an internal investigation, which Asda fully supported, we have informed the Charity Commission and police of our concerns."

A spokeswoman for the supermarket said: "Asda expects the highest standards of integrity from its colleagues. Although we’re incredibly disappointed by these allegations, we are pleased that our internal controls worked."

The spokeswoman said that the company had made an additional donation to the foundation "to ensure that none of the good causes that it supports are financially disadvantaged as a result of this matter". She did not reveal how much the donation was.

The Charity Commission has received a serious incident report about the matter, but a spokeswoman for the regulator said it would not be taking any action because it was satisfied that the charity has handled the matter appropriately.

She said: "I can confirm that we received a serious incident report from the charity outlining the details of the situation and how the trustees were handling it. We have since received another update. We are satisfied with the information that the trustees have provided and the actions they are taking, and we have no regulatory role to play at this time."

It was not possible to contact Kelly or Murley.