Betsi Cadwaladr University Health Board (BCUHB) gave £20,000 towards the Lap of Wales Challenge.
But the Wales Audit Office found the board breached its own rules and regulations in handling the funding.
Board officials said they would learn from the experience after auditors highlighted a lack of transparency and poorly-managed conflicts of interest.
Auditors also found the health board failed to follow procurement rules when appointing suppliers for the event.
The Lap of Wales Challenge was organised by Cerddwn Ymlaen under the leadership of its national organiser Eryl Vaughan and was fronted by the Welsh opera singer Rhys Meirion.
The event cost more than £150,000 to arrange and the surplus was £1,368.
The challenge saw a number of Welsh celebrities undertaking a week-long journey through Wales in July 2015 to raise awareness of the Welsh Government's changes to the organ donation law.
It was arranged in aid of Cronfa Elen. The fund was set up by Mr Meirion in memory of his sister who died in 2012, and was incorporated within BCUHB's own official charity, Awyr Las/Blue Sky in 2014.
The health board awarded £20,000 towards the event, with another £20,000 coming from Cardiff and Vale Health Board and £45,000 from the Welsh Government.
The report found £10,000 of BCUHB's contribution was awarded as a loan, but the paperwork was not processed by the health board's financial team.
Despite that, the funds were transferred.
Cerddwn Ymlaen said it was not aware it received a loan rather than a grant and would not have agreed to it, had it known.
To ensure the Lap of Wales project was not in deficit, Cerddwn Ymlaen undertook additional fundraising to meet the £154,054 cost of completing the challenge.
Concerns were also raised about a breach of the health board's financial regulations in relation to the challenge.
A spokesperson for BCUHB said: "The health board was very keen to learn from this experience which is why it asked the Wales Audit Office to carry out this review, as we recognise that to achieve the objectives of the charity, it is important to work with external bodies.
"Such arrangements are underpinned by trust, common objectives and mutual cooperation but misunderstandings can occur."
Officials added a new joint-working protocol would provide a robust governance framework for future projects and require all arrangements to be formalised.

Kieran Innes, of Aberdeen, died after his car crashed on the A90 north of Forfar on Tuesday morning.
Mr Innes was a coach with Middlefield Wasps FC.
The club said in a statement: "He was a genuine nice guy and would do anything for anyone. Kieran also ran our disability football. He loved all his players who will miss him dearly."
'Mark of respect'
The statement added: "The Wasps family has lost a true gent who will be sorely missed. He loved the Wasps. Thoughts go to the Innes family.
"As a mark of respect we will be doing a minutes applause at each Wasps game this weekend - Kieran didn't do silence."
Police Scotland in Tayside renewed an appeal for information.

The 28-year-old centre-back spent a spell on the sidelines with a similar problem last season.
He also missed the start of the season after surgery on a back injury before returning at the end of October.
"It is not a recurrence of the injury which required surgery so that is a positive," said Stoke boss Mark Hughes.
"Unfortunately, the negative is that he has soft muscle damage and at the moment it is looking like it will probably be three to four weeks I would think."
Shawcross will now miss the second leg of the Capital One Cup semi-final at Liverpool on Tuesday. The Reds beat Stoke 1-0 in the first leg.
The Potters also face an FA Cup fourth-round tie at Crystal Palace as well as Premier League games against Manchester United, Everton and Bournemouth in the next month.
Auditors have questioned the way a health board handled funding awarded to a celebrity-led charity event.
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Stoke City captain Ryan Shawcross could be out for up to a month with the back injury that forced him off in Saturday's defeat at Leicester.