WATCHDOGS have launched a formal investigation into spending by the Scottish Liberal Democrats at the last Holyrood election, after a complaint about possible irregularities.

The Electoral Commission is examining whether the party filed an accurate report of its spending during the 2016 campaign, with a focus on one key marginal seat.

The Scottish party faces a heavy fine if it knowingly or recklessly broke electoral law.

Last year, the Commission imposed a maximum fine of £20,000 on the UK LibDems for failing to declare hundreds of payments during the 2015 general election.

The Scottish inquiry was launched earlier this month after a member of the public raised concerns about LibDem spending in the Edinburgh Western seat and Lothians region.

Previously safe LibDem turf, Edinburgh Western was won by the SNP in 2011, and the LibDems mounted an intense campaign to regain it in 2016, winning by 2,960 votes.

Alex Cole-Hamilton won after his party exploited an alleged financial scandal around the local SNP MP, Michelle Thomson, and saturated the seat with leaflets and personnel.

However he only stayed under the spending cap by attributing thousands of pounds of expenses to the party's list campaign in the Lothians and to his local branch.

The Commission is now looking at whether the spending was correctly apportioned.

It is also examining why around £1950 that Mr Cole-Hamilton identified as list spending was apparently omitted from the party's national return.

Mr Cole-Hamilton, now LibDem health spokesman at Holyrood, reported he spent £32,549 on his constituency campaign, £543 below the legal limit.

LibDem candidates in Edinburgh's other five seats spent an average of £924; the SNP spent £18,593.

Mr Cole-Hamilton was a "dual candidate", standing in both a seat and on the list.

Dual candidates must make an "an honest assessment" of whether their spending promotes their constituency or list campaign, and parties "should not split costs if an item is produced mainly to promote a candidate".

However many leaflets claimed by the LibDems to be Lothians list spending were heavily skewed towards specific neighbourhoods in Edinburgh Western.

A bill of almost £1000 for 38,500 copies of the "West Edinburgh News" was attributed 39 per cent to the list fight and only 61 per cent to the constituency battle.

Thousands of pounds of office costs were also split 60:30:10 between the seat, list and local party, while leaflets, deliveries and stationery were divided in a myriad of ratios between the constituency and list fights, including 50:50, 75:25, 80:20 and 88:12.

Mr Cole-Hamilton also claimed on his return he spent more on tea and biscuits than renting a shared office, spending £180 on the former and £83.45, or 68p a day, on the latter.

The SNP, which rented a campaign office next door to Mr Cole-Hamilton on a shopping arcade in Corstorphine, spent £760 on its leasing costs.

With submitting an inaccurate spending return in a criminal offence, the MSP and his election agent were investigated by the police and reported to the Crown Office.

However in October, prosecutors said that after "careful consideration" they had dropped the case against the pair and there would be "no proceedings at this time".

Mr Cole-Hamilton, 40, who was the party's general election campaigner last year, said at the time he "always knew" the procurator fiscal would conclude he had no case to answer.

The Electoral Commission probe is separate and unaffected by the Crown Office decision.

An SNP spokesperson said: "This is obviously very embarrassing for the Scottish LibDems.

"There are very clear rules about spending in elections and the Electoral Commission - and everyone else - will want to know there have been no breaches.'"

The Scottish LibDems claimed disgruntled SNP supporters were behind the investigation.

A spokesperson said: "All expenditure in this election was apportioned correctly and clearly identified in our election return which is a matter of public record. We have full confidence that there is no substance to this complaint.

"Perhaps the SNP should spend less time whinging when they lose an election and more time addressing the problems they have created for themselves in education, health and the police service. It's no wonder that their government are on the slide."

A spokesperson for the Electoral Commission said: "The 'Scottish Liberal Democrats' submitted the party's spending return for the 2016 Scottish Parliament election and the Commission has begun an investigation into the party's spending return."