Expenses scandals engulfing Australia’s corporate regulator were uncovered internally, with staff tipping off the auditor-general.

Australian Securities and Investments Commission chair James Shipton has stepped aside after it was revealed the agency paid more than $118,000 for him to receive personal tax advice.

ASIC deputy chair Daniel Crennan quit after it emerged he claimed nearly $70,000 from taxpayers to cover rent.

Acting chair Karen Chester has corrected earlier evidence suggesting the auditor-general discovered the matters.

“ASIC staff identified these payments and brought them to the attention of the ANAO as part of the year end audit,” she told a Senate estimates hearing on Tuesday.

Ms Chester said the full commission found out about the expenses through the audit office.

In an extraordinary intervention, Auditor-General Grant Hehir wrote to Treasurer Josh Frydenberg with concerns he didn’t have confidence that appropriate action would be taken.

Ms Chester agreed it was an exceptional letter with no precedent she was aware of.

Committee chair and Liberal senator James Paterson blasted the watchdog’s failure to stop the payments for more than a year after being told about them.

“ASIC’s leadership structure is a total mess,” he told the hearing.

“It is totally incapable of addressing what should be an absolutely basic requirement of any regulator, which is to have your own house in order.”

Ms Chester said an independent review into the expenses issues would be crucial for ASIC’s improvement.