Malcolm Turnbull has asked the Australian Federal Police commissioner, the attorney-general and the justice minister for advice about the revelation that Pauline Hanson’s key adviser, James Ashby, floated the idea of One Nation scamming public funds.

Ashby suggested at a meeting last year that a way One Nation could make money at taxpayer expense in the coming Queensland election was to inflate receipts presented to electoral authorities.

The party did not pursue the idea, but its surfacing – via a recording of the meeting – is causing serious fallout for Ashby and for Hanson, who was present at the meeting.

Labor has written to the Queensland electoral commissioner and the Queensland police commissioner asking them to investigate.

In the recording, Ashby said: “There is an opportunity for us to make some money out of this, if we play it smart. Now I know they say you can’t make money out of state elections, but you can.”

Outlining the idea at the meeting, Ashby said: “I’ll deny I ever said this but what stops us from getting a middle man or gracing – I’m happy to grace in cash and double the price of whatever it is.”

The party would say to candidates that it would fund 50% of a package, he said. The package might be A$5,000, with the candidate told they were going to pay $2,500 and party would pay the other $2,500.

“The other $2,500 is profit. It’s the fat,” Ashby told the meeting. “When you lodge the receipt at the full price with the Electoral Commission of Queensland you get back the full amount that’s been issued to you as an invoice.”

At an extraordinary joint news conference with Hanson on Monday, Ashby said the revelation was “embarrassing”, adding that it was a “poor choice of words on my behalf”.

He complained that “these were secretly recorded conversations in what we thought was an environment where we could safely put any idea on the table and it wouldn’t go any further”.

“We’ve never implemented this idea that was put forward and it’s regretful that obviously a poor choice of words on my behalf had to be aired in such a public manner,” he said.

Hanson told the news conference: “Don’t forget I was at the meeting as well. You do not have the full recording of that meeting, so you have no idea what was said at the rest of the meeting. We knocked it on the head at the meeting. It didn’t go ahead – that’s why. It was an issue that was raised and it was knocked on the head there and then.”

In comments later, Ashby said he had felt it necessary to come forward to deal with the story – he cast Hanson as being at the news conference to support him. “At times I’m going to have to come forward and defend myself”, he said.

He said political parties were run like businesses, but formerly One Nation had been run in a dismal fashion.

His proposal had been a silly idea, he said. Amid suggestions there was more of the tape to come out, he said could not remember what else he had said at the meeting.

Crossbench senator Derryn Hinch said Ashby had committed a sackable offence but Hanson “won’t sack him”.

In parliament, Shadow Attorney-General Mark Dreyfus quizzed Turnbull about the allegations One Nation had conspired to defraud Queensland electoral authorities.

Dreyfus asked whether Turnbull had referred this and previous allegations about One Nation to the Australian Federal Police to investigate whether any Commonwealth laws had been broken, including whether any similar fraud had been perpetrated against the Commonwealth.

He also asked whether the government would be reviewing payments made to Coastal Signs and Printing – Ashby’s Sunshine Coast-based business – to make sure there hadn’t been inflated receipts.

Turnbull said the question raised “some serious matters” and he would be getting advice.

The government is somewhat conflicted over Ashby. It needs One Nation’s Senate votes for legislation opposed by Labor and the Greens – Ashby is Hanson’s right-hand man and arguably the party would be less stable without him. But anything that discredits Ashby and One Nation is useful ahead of the Queensland election.

Ashby is a divisive figure within One Nation, and bitterly attacked by some ex-members.

He has been the centre of controversy over the contested funding for a plane used to ferry Hanson around. He says he purchased the aircraft and it was owned by his business.

A former Queensland One Nation candidate, Diane Happ, who had a row with the party over the cost of campaign material, told the ABC on Monday that Ashby was “a viper, he’s a snake, he’s nasty stuff”.