The Conservative Party's failure to accurately report its 2015 General Election expenses means there is a "realistic prospect" that candidates gained a "financial advantage" over opponents, the elections watchdog has said.
The Electoral Commission fined the Tories a record £70,000 for "numerous failures" in reporting its expenses for the 2015 General Election, and three by-elections in 2014, and referred the party's former treasurer to the police.
Tories fined £70,000 for failing to accurately report election expenses
Commission chairman Sir John Holmes said the Tories' failure to follow the rules "undermined voters' confidence in our democratic processes" and said there was a risk political parties were seeing such fines as "a cost of doing business".
The Conservatives accepted the fine but their claim that they complied fully with the investigation was questioned by the Commission, which revealed it had to go to court to obtain certain information from the party and criticised its "unreasonable uncooperative conduct".
It comes with the Tories under pressure on numerous fronts, including a dramatic U-turn on Budget tax rises, the Scottish Government's demands for a second independence referendum, and as Theresa May prepares to trigger Brexit by the end of the month.
And it follows the news that a dozen police forces have sent files to the Crown Prosecution Service as part of a parallel probe in to the Conservatives' 2015 election expenses.
At least three Tory MPs have been questioned by police investigating whether election finance laws were broken in the 2015 contest.
The Commission's investigation was launched following Daily Mirror and Channel 4 News allegations that the Tories had incorrectly recorded spending on a "battle bus" tour which took activists to campaign in key marginal seats.
The allegations centred on whether the tour should have been recorded as counting towards individual candidates' spending limits, rather than as part of the larger national spending return.
The Commission found no evidence to suggest the party had funded the Battlebus2015 campaign to promote the success of individual candidates.
But it said there was a "clear and inherent risk" that activists on the coaches "might engage in candidate campaigning" and that "it is apparent that candidate campaigning did take place" during the tour.
Among the seats investigated by the Commission was South Thanet, where Tory Craig Mackinlay narrowly beat former Ukip leader Nigel Farage.
The Commission said in its report: "The inclusion in the party return of what in the Commission's view should have been reported as candidate spending meant that there was a realistic prospect that this enabled its candidates to gain a financial advantage over opponents.
"In this respect the Commission noted that the Battlebus2015 campaign visited target constituencies and that South Thanet was also a key priority for the party."
The Commission found that the party assumed, but did not expressly discuss, recording the bus tour as national spending.
It has referred Simon Day, who was the party's treasurer until April 2016, to the Metropolitan Police over a potential breach of the Political Parties, Elections and Referendums Act.
The watchdog said Mr Day's claim that £63,487-worth of spending on the bus tour had been omitted from the party's spending return as a result of "human error" was "not a reasonable excuse".
If Mr Day is found to have "knowingly or recklessly" falsely declared that the party's 2015 election spending return was complete and correct to his knowledge or belief, he will have committed a criminal offence under the Act, the Commission said.
Sir John said: "Our investigation uncovered numerous failures by a large, well-resourced and experienced party to ensure that accurate records of spending were maintained and that all of the party's spending was reported correctly.
"The rules established by Parliament for political parties and their finances are there to ensure transparency and accountability.
"Where the rules are not followed, it undermines voters' confidence in our democratic processes, which is why political parties need to take their responsibilities under the legislation seriously."
He went on: "This is the third investigation we have recently concluded where the largest political parties have failed to report up to six-figure sums following major elections, and have been fined as a result.
"There is a risk that some political parties might come to view the payment of these fines as a cost of doing business; the Commission therefore needs to be able to impose sanctions that are proportionate to the levels of spending now routinely handled by parties and campaigners."
Commission chief executive Claire Bassett said the investigation had been "difficult" and that the watchdog at one point had to obtain a court order to get the Tories to hand over information.
"It has been quite a protracted investigation and some of that has been because we have had some difficulty in getting information from the party and indeed had to resort to seeking a court order at one point," she told BBC Radio 4's Today programme.
A Conservative Party spokesman said: "Political parties of all colours have made reporting mistakes from time to time.
"The Labour Party and Liberal Democrats both failed to declare sums of money which constituted a larger proportion of their national expenditure in the 2015 general election.
"Both have been fined by the Electoral Commission, and the Liberal Democrats are also under police investigation.
"This is the first time the Conservative Party has been fined for a reporting error.
"We regret that and will continue to keep our internal processes under review to ensure this does not happen again.
"Given the range of technical errors made by a number of political parties and campaign groups, there also needs to be a review of how the Electoral Commission's processes and requirements could be clarified or improved."