Allegations of a "serious financial nature" against a UKIP MEP and general election candidate "couldn't look worse", Nigel Farage has said.
Janice Atkinson, MEP for the South East, was due to fight the Folkestone and Hythe seat on 7 May.
She was suspended after a Sun newspaper investigation into an apparent expenses claim by a member of her staff.
Kent Police said it was investigating a fraud allegation.
Party leader Mr Farage said: "It looks very bad - it couldn't look worse and I'm astonished by it."
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Nigel Farage: "One of the most incredibly stupid and dishonest things I'd seen"
He told the BBC a disciplinary hearing would be held "early next week".
Ms Atkinson has not responded to requests for comment.
The newspaper published a secret recording appearing to show Janice Atkinson's chief of staff, Christine Hewitt, speaking to the manager of a restaurant in Margate, Kent, before UKIP's spring conference.
In the footage, she appears to ask for an invoice for a much higher sum than the bill she had received.
'Couldn't believe it'Ms Hewitt is heard to say: "The idea is we overcharge them slightly, because that's the way we repatriate it."
A member of the hotel staff replies: "3,150, is that all right? Yeah, if you're all right with that? Is that enough for you?"
Ms Hewitt then says: "Oh God yeah, that's more than enough."
It is not known whether Ms Atkinson knew or authorised her staff member's apparent actions.
The BBC has been unable to contact Ms Hewitt for comment.
Mr Farage said it was too early to say whether Ms Atkinson would be allowed to run for UKIP in Folkestone and Hythe.
He said: "I spoke to her [Ms Atkinson] after midnight and she said it was all to do with bills and fundraising. I was, frankly, confused by it all."
He added: "I simply couldn't believe it - how on earth could anyone think they could behave like this?"
Police said the Kent and Essex Serious Crime Directorate had received a report of fraud.
"The allegation is being reviewed and the investigation is ongoing," it said in a statement.
"This investigation is at a very early stage. Kent Police will not be releasing further details at this time."
Janice AtkinsonJanice Atkinson stood for election as a Conservative candidate in 2010 for the Yorkshire constituency of Batley and Spen, but lost by 4,406 votes.
She joined UKIP in 2011 and was elected as an MEP for the South East last year.
In August she hit the headlines after describing a Thai constituent and UKIP member as a "ting tong".
On her website she claims to have started her first business at the age of 22 and has worked in marketing communications for FTSE 100 companies
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