Police searched the car and found a "bum bag" on its centre console which contained a small quantity of white crystals.
The bum bag was photographed in the car but the pictures did not clearly show whether the front seat passenger's wallet was also inside.
The passenger was taken to Ashburton Police Station, where he was searched and put into a cell.
The bum bag and its contents were set aside while both officers drove the arrested man to Dunsandel placing him in the custody of Christchurch-based officers.
Upon returning to Ashburton Police Station, one of the officers processed and photographed the exhibits.
He said he found the man's wallet in the bum bag, along with methamphetamine.
The man was charged with possessing methamphetamine.
At trial, the man said the bum bag and drugs were not his.
He claimed he had given his wallet to one of the officers during the handover in Dunsandel.
He said he believed the Ashburton officers had then planted his wallet in the bum bag to incriminate him.
The officers denied this, but were poorly prepared for the court hearing and provided contradictory and inaccurate evidence, according to the IPCA report.
The Judge was critical of the officers' evidence, and dismissed the charge.
The IPCA ruled the officers did not correctly follow police procedures when they arrested the man and seized the bag.
However, the IPCA found that the man's evidence about what happened at Ashburton Police Station was unreliable, and concluded on balance that it was likely his wallet had always been in the bag.
Mid/South Canterbury Area Commander Inspector Dave Gaskin said police acknowledged the findings.
"As a result of the investigation officers in the Mid-South Canterbury Area will receive additional training across a number of areas including Search and Surveillance Act procedures, exhibit handling, and prosecution preparation."