The Lancashire Police and Crime Commissioner (PCC) could face criminal charges over expense claims made before he was elected.
The inquiry will focus on mileage claims from Clive Grunshaw while he was a Labour county councillor and police authority member.
The details of the mileage claims first emerged in an article in the Sunday Times and came following a freedom of information request from a local Conservative councillor.
It was reported that Mr Grunshaw allegedly "double claimed" mileage expenses from his home in Fleetwood to meetings of the county council and Lancashire Police Authority on the same days in Preston.
This was said to have happened on 23 occasions as Mr Grunshaw allegedly claimed a total of £1,200 in mileage and about £350 in subsistence.
The matter was referred to the police watchdog by Lancashire's Police and Crime Panel which scrutinises the work of the PCC who was elected in November.
The Independent Police Complaints Commission (IPCC) said it had passed its findings to the Crown Prosecution Service (CPS) on Wednesday to decide "whether there is evidence to warrant criminal charges".
Following the announcement, Labour said it had suspended Mr Grunshaw from the party pending the outcome of the CPS inquiry. A Labour spokesman said: "This is a usual course of action for such a situation."
Mr Grunshaw said he would continue in his post as commissioner while he awaits the CPS's decision.
He said: "I understand the public interest in this matter, and I wish to reassure the residents of Lancashire that during the last nine months I have complied fully with the investigative process and will continue to do so.
"I maintain that at no point did I wilfully submit claims which I knew to be untrue and every expense claim I did make was genuinely intentioned.
"While I await the Crown Prosecution Service's decision I will continue to carry out my role as normal and be the public voice of policing in Lancashire."
Miranda Carruthers-Watt, chief executive and solicitor for the Office for the Police and Crime Commissioner (OPCC), said: "This investigation relates to claims made when Clive Grunshaw was subject to the Lancashire County Council expenses and allowance scheme as a Lancashire county councillor and a member of Lancashire Police Authority. The allegations do not relate to any expenses claims during his time as police and crime commissioner.
"The OPCC has assisted the Independent Police Complaints Commission throughout their investigation, and will continue to provide assistance now the matter has been referred to the Crown Prosecution Service.
"While we await the decision of the CPS we will continue to support the commissioner in carrying out his statutory duties, and we look forward to a swift conclusion to this matter."
In a statement, the IPCC said: "The independent investigation began after allegations about expenses claims made by Clive Grunshaw before his election as a PCC were referred to the IPCC by Lancashire's Police and Crime Panel.
"Mr Grunshaw was interviewed by IPCC investigators as part of the investigation.
"A full investigation report was sent to the CPS on 25 September.
"The CPS is responsible for making a decision on whether there is evidence to warrant criminal charges."
A CPS spokeswoman said: "We await receipt of the IPCC report, which we will then consider. Once we are satisfied that no further investigation is required, we will be in a position to determine whether or not charges should be brought."