Arlene Foster, the Democratic Unionist party leader, has claimed Sinn Féin’s Martin McGuinness knew of warnings about a botched green energy scheme that cost the taxpayer hundreds of millions of pounds.

A public inquiry into the “cash for ash” scandal heard evidence from Foster on Tuesday that she had told the late deputy first minister about a note from a whistleblower that claimed people were abusing the system for financial gain.

Foster, whose party struck a deal with Theresa May which is keeping the UK government in power, is facing demands to resign because of her role in the renewable heat incentive scheme.

She was the politician in charge of energy matters in Northern Ireland when the initiative was set up in 2012 to encourage uptake of eco-friendly heating systems. Overgenerous fuel subsidies meant some people, often farmers, left their boilers running 24 hours a day to make an easy profit. The scheme left the government with a £490m bill.

Questions over the DUP’s handling of the scheme led to the collapse of power sharing at Stormont more than 18 months ago. McGuinness resigned as deputy first minister in January 2017 in protest at the handling of the scheme.

Foster’s claim that Sinn Féin knew about the scandal has dismayed republicans, who said they were kept in the dark about it.

Under close questioning Foster told the inquiry that McGuinness knew about the contents of the note she received in January 2016, which was the first time she heard of the potential for fraud in the scheme, she claimed.

Foster said if she did not give the note to McGuinness, she certainly spoke to him about it. The note was passed to a senior civil servant who also worked for McGuinness, she said. “And in any event the head of the civil service works for both myself and the deputy first minister, so I presume that the minute that was sent to [the former permanent secretary] Andrew McCormick ... if it came into the DUP system it would have [gone] into the Sinn Féin system, so I would have imagined that Sinn Féin were aware of that document.”

Earlier on Tuesday, Foster was challenged to explain why she had forgotten a meeting with her former enterprise minister in which he told her about problems with the scheme.

She has contested claims by the former minister Jonathan Bell that others in the DUP had pushed to delay cost control tariffs and that the party then tried to “fit him up” over the debacle.

Foster told the inquiry, which is taking place at Stormont, that she greatly regretted not sacking Bell in January 2016 when she became first minister. “Clearly with hindsight I shouldn’t have left him there,” she said. “The view was expressed to me, ‘how much harm can he do in three months?’”

Foster was first minister but that role ended when McGuinness resigned as deputy first minister in January 2017, forcing an election. McGuinness died just over two months later.

Foster remains DUP leader, but there has been no return to Stormont for almost 600 days, due to the impasse between her party and Sinn Féin.