Jamie I do not see that this is primarily a charity 'connected person' issue. It is a Value for Money issue as the councillors note. On the facts presented (as noted by round again) a council giving a grant to a charity the bulk of which ends up in the pocket of the councillors wife does not sound like good value for money and is a pecuniary interest.
The resolution is in the hands of the councillors who have no need to vote the grant though if they think it is dodgy. At a stretch the council can say what the grant is used for - in detail, and ask for the return of any not so used.