The Co-operative Group is to cut its funding for charities and ethical causes, the Observer has claimed this weekend.

The Observer reports that in light of recent scandals, and amid discovery of a £1.5bn hole in the Co-operative Bank’s balance sheets, the board of the Co-operative Group is cutting or terminating donations to charities and organisations.

The Group, whose bank chairman Rev Paul Flowers is currently on bail in Merseyside over drug allegations, would not confirm or deny the allegations.

A spokesman told civilsociety.co.uk: “The Co-operative Group is currently conducting a review of its governance to ensure it best serves the needs of its 7 million members and gives them a true voice.

“The Group is also looking closely at the level of financial support it can offer to the wider network of co-operation that it has traditionally supported. The Group has asked members to contribute their views so that the new management team can give them the organisation and businesses that they deserve and can be proud of.”

The Observer said it understood that some members of the Co-operative Group board are concerned that the scandals surrounding Flowers are being used to change the traditional ethical policies and democratic structures of the company.

Chancellor George Osborne has ordered an independent investigation into events at the Co-op bank under the powers of the Financial Services Act 2012.

Former Co-op chair Flowers resigned from his position as a trustee of Terrence Higgins Trust last month, after newspaper reports showed evidence of him buying hard drugs. He had held the role for two years.

The Charity Commission said they would write to all charities at which Flowers was a trustee, to check that their governance systems are robust.