"Parliament pays salaries to assistants of lawmakers for work directly related to their European mandate", a European Parliament spokeswoman said.
The investigation found that Christopher Adams, besides being Farage's personal parliamentary assistant, was also carrying out work for the Euroskeptic party as its national nominating officer.
As Farage has reportedly failed to provide proof of Adams' work as parliamentary assistant, the European Union is now docking the Brexiteer's pre-tax monthly pay of €8,484 (US$10,328) per month in a bid to recoup the lost funds.
A source in the European parliament told the Guardian: "Since 1 January  the European parliament has withheld 50% in order to recoup the €40,000 due in salary that was paid to Christopher Adams and which can not be proved by Farage".
Docking Farage's pre-tax MEP salary of €8,484 a month would mean he would have repaid what officials call his "debt to the EU" by October 2018.
Mr Farage was defended by the European parliament's Europe of Freedom and Direct Democracy group (Efdd), of which he is the chairman.
Pro-Brexit politician Nigel Farage suggested a second vote could help "silence" pro-Remain voters seeking to overturn the result of the EU Referendum.
Two investigations were closed without any formal action.
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Mr Helmer denied any wrongdoing but gave no explanation as to why he was stepping down.
He fumed: "This allegation is all part of their politically motivated assault".
Farage has the right to appeal at the European Court of Justice.
Ukip is more reliant on EU funding than other British political parties because of its success in European Parliament elections entitling it to Brussels-funded staff.
The former city banker lives in a multi-million-pound townhouse in London's Chelsea district and has been paid a salary as an MEP since 1999.
Marine Le Pen is under formal investigation by French magistrates, after she refused to repay almost €300,000 of EU funds, following a European parliament investigation into EU funds spent by the far-right Front National leader.
A spokesperson for the European Parliament authorities said she could not officially confirm the situation regarding Mr Farage's salary.