A Charity Commission investigation has found that The Smiles Foundation did not carry out a standard criminal background check on the volunteer as it "already knew about the convictions".

The Smiles Foundation, formed 11 years ago, said it had enough references, that it had put tight restrictions on his working conditions, and that it had not acted illegally.

The move has prompted the Charity Commission to make a series of recommendations, including the need for vigorous background checks.

It criticised the Leeds charity for not taking out its own Criminal Record Bureau (CRB) check – although it was policy – and only taking personal references.

In a report on the inquiry, the commission states: "This meant that the trustees only knew what the volunteer had chosen to tell them.

"The commission has concerns about the significant reputational risks to the charity that arise from having a sex offender volunteer (in whatever capacity) working for a charity involved in helping children.

"Even though the volunteer does not have any direct contact with the charity's beneficiaries, the commission is concerned that, as a matter of good practice, the trustees should not have allowed this to happen."

A probe was launched after the Child Exploitation and Online Protection Centre (CEOP) alerted the commission that a sex offender was working on one of the charity's orphanage projects in Romania.

A five-week inquiry began on 17 April 2007 to investigate the actions of the trustees.

Due to his conviction, the trustees put him under strict supervision, away from children, and ensured he was housed in a nearby town – not in an orphanage.

The volunteer had also informed all relevant UK authorities about his movements and had not breached any conditions of his release.

The inquiry report states: "The trustees had not broken strict legal requirements by allowing the individual to volunteer in this position with the charity."

Kevin Hoy, chief executive of The Smiles Foundation, said: "The most important thing to understand is that when people make mistakes in their life and serve their punishment, I don't believe it's impossible for them to still contribute something positive back to society in the future.

"If the charity commission believes it's so bad to use a volunteer who has got that sort of record, they should say you cannot do it. They cannot criticise if they allow it."

Mr Hoy added that he had references from the volunteer including a CRB background check – but it was one which had been done by another body, the YMCA.

The Charity Commission recommended that the charity should have ordered another CRB check themselves.

Mr Hoy said: "The CRB check had been done by the YMCA and I spoke to the chairman of that YMCA to get all the details so we thought that was satisfactory.