"The investigating officer should have investigated the crash more thoroughly", ICPA chairman Judge Sir David Carruthers said in his decision released on Thursday.
"The decision to issue a written traffic warning to the off-duty officer was not appropriate in the circumstances."
The officer had not communicated clearly with both parties about the intended outcome and they had different views on whether he would be charged.
He should also have recognised there may have been a perceived conflict of interest and notified a supervisor, Sir David said.
However, the authority did not find the investigating officer's written traffic warning was because of bias or favouritism.
The officer last year pleaded guilty to careless driving.
- AAP