This is not best practice in any shape or form but sadly fits into a very grey area. The governing document most definitely needs to be reviewed and almost not charitable funds can be used for statutory obligations either legally or morally. That said there's no reason why the monies can't go into the council bank account so long as they are ring-fenced for a specific set of purposes i.e. grants, village hall (If not ran by the council).
The Charity Commission would be very interested to have an opinion on this i'm sure.