The report on Baroness Warsi finds she did breach the ministerial code but it "was a minor one" and "did not use her office for personal financial gain".
The Prime Minister accepts it was a minor breach of the ministerial code and calls Baroness Warsi "a great asset".
Responding to the report, Baroness Warsi said: "The allegations on this matter were untrue and unsubstantiated and I am pleased that Sir Alex Allan’s report has confirmed that."
Baroness Warsi still faces investigation by the Lords Commissioner on Standards on her expenses, so she's not totally in the clear yet.
The Conservative Party Co-chairman Baroness Warsi is facing two separate investigations into potential breaches of ministerial conduct.
The first is by the House of Lords Standards Commissioner, who will look at allegations that she claimed £165.50 per night in accommodation expenses while living rent-free at the home of her friend, Tory official Naweed Khan.
She claims she made an "appropriate payment" to Mr Khan for the trouble of putting her up.
She is also facing a separate investigation by Sir Alex Allan, the Prime Minister's independent adviser on ministerial interests, into her failure to declare her business relationship with her friend Abid Hussain, who accompanied her on an official trip to Pakistan in July 2010.
Baroness Warsi has admitted in a letter to the Prime Minister that she did not "consider the significance of this relationship" at the time.
Scotland Yard has decided that there are not grounds for a police investigation into allegations that Baroness Warsi claimed for accommodation expenses while staying at a friend's house rent-free.
– Scotland Yard statement
[We have] determined that this is not a matter for the police. As such the matter has been referred back to the House of Lords Commissioner for Standards. The matter was considered in accordance with previously adopted procedures.
The House of Lords Standards Commissioner has launched a formal investigation into Cabinet minister Baroness Warsi's expenses claims.
Former police chief Paul Kernaghan decided to investigate after being asked to look into the claims by Lady Warsi.
She is facing allegations that she claimed for accommodation expenses while staying at a friend's house rent-free.
Scotland Yard said it had decided not to investigate Lady Warsi's expenses and had passed the matter back to the House of Lords.
Labour had called for a criminal inquiry into the Tory peer's expenses.
The Justice Secretary Ken Clarke the told BBC Radio4's PM programme it was right that senior politicians were put under "veryclose scrutiny" but he also said:
– The Justice Secretary Ken Clarke
"There is a bit of a fashion at the moment, the media do tend to act as a bit of a pack and they are steadily working through my colleagues trying to find things to complain about.
Sayeeda (Warsi), I am astonished by some of the complaints against her. It really is pedantic, some of it."
Baroness Warsi will face an investigation into whether she's broken ministerial rules and it's the first time the Prime Minister has decided that a minister needs to be investigated in this way.
Some are drawing a comparison between Jeremy Hunt, asking why she is being investigated and not Mr Hunt.
Downing Street says they are two very different situations.
But the issue for the Conservative Party co-chairman is she went on this official government trip to Pakistan in 2010 with a relative of her husband - who was also a business partner.
There is this potential conflict of interest, and that now needs to be investigated.
In a letter to Mr.Cameron she says:
On a personal note David, I am sincerely sorry for these difficulties.
The Conservative Party co-chairman Baroness Warsi has written to the Prime Minister explaining why her business relationship with Abid Hussain, a community activist who helped organise her official trip to Pakistan, was not declared. She writes:
– baroness warsi
I did not recognise, at the point that this visit was arranged, a need to disclose to my officials and the High Commission that Abid Hussain and I have a common business interest as minority shareholders in a small food company ... I sincerely regret that I did not consider the significance of this relationship with Mr Hussain when the arrangements for the visit were being made ... I am sorry. I regret that this failure may have caused embarrassment to the Government.
Replying to Baroness Warsi, the Prime Minister said:
There are clearly some lessons for future handling and I have asked Alex Allan, my adviser on Ministers' interests, to consider the issues that have been raised with respect to the Ministerial Code and to provide advice to me as rapidly as possible.
The Conservative Party co-chairman Baroness Warsi today defended an official ministerial trip to Pakistan she made with business partner Abid Hussain, but apologised to the Prime Minister for any "embarrassment to the Government" it may have caused.