Three senior officials at a Police Federation branch are under criminal investigation over their handling of funds, including receiving interest-free loans worth tens of thousands of pounds, the Guardian has learned.

An investigation has begun into the former secretary of the West Mercia branch Jamie Harrision, who has been suspended from his role with the federation.

The two others under investigation are the former chair Sgt Russ Yeomans and another official, Sgt Nigel Mortimer, who led on conduct for the branch.

The inquiries started following an internal audit by the national Police Federation, which highlighted “business practices and policies” that aroused concerns, a spokesperson said. The expenses claimed are also being examined.

The Police Federation has reported the concerns to West Mercia police’s professional standards department, triggering two inquiries: a criminal investigation to see if the police officers broke the law and should stand trial; and an inquiry to see if police disciplinary charges should be brought.

The Police Federation said the West Mercia branch was believed to be the only one of 43 local federations that offered senior officials interest-free car loans.

The Police Federation of England and Wales (PFEW) represents rank and file officers and its funds come from members’ subscriptions. It is undergoing sweeping reforms after concerns about its handling of money, and other issues, led the government to threaten to force it to change.

Car loans given to Harrison, Yeomans and Mortimer from members’ money are included in the investigations.

Harrison was loaned £20,000 in October 2017. Documents obtained under a freedom of information request show that as of 31 May this year the outstanding balance was £18,800. Yeomans was granted a loan of £19,500 in February 2015, and the remaining balance was £10,000 three years later. Mortimer owed £3,200 from a loan of £12,000 dating to September 2014.

Rules for the West Mercia federation say: “Interest-free car loans are available and will be provided from the services account for all full-time officials of the joint branch board. The loans will be agreed without the need to bring them before the management committee, under the understanding the loans are repaid and a loan agreement is signed, which the trustees can examine at any time.

“Each loan agreement must be approved by a minimum of three members of the management committee, one of which must be the chairman or secretary, together with two from the executive committee. The loan applicant cannot be one of the persons making the decision on the application.”

John Apter, the chair of the PFEW, said: “We identified an issue earlier in the year which we reported to West Mercia police for their initial investigation. Following our own internal investigation a member of the West Mercia federation branch was suspended as a federation representative and two others also placed under investigation.

“We continue to cooperate fully with the police investigation and it would be inappropriate to comment further whilst this is ongoing.”

The concerns were reported in May 2018. A PFEW spokesperson said: “It highlights our internal processes are robust and have picked up concerns. We have been open and transparent about reporting this to the appropriate police force, and it is the way forward for the Police Federation as it reforms.”

Created by parliament in 1919 to represent the rank and file, the Police Federation was intended to stop officers from joining unions with the right to strike. It represents about 120,000 officers across England and Wales.

Martin Evans, assistant chief constable of West Mercia police, said: “As a result of a complaint being made to the national Police Federation relating to the conduct of West Mercia Police Federation members, an audit was carried out by the national Police Federation.

“The findings of this audit were presented to West Mercia police and a referral by the force was made to the Independent Office for Police Complaints (IOPC) in relation to this matter.

“The IOPC determined this to be a locally managed investigation and therefore a full and thorough investigation will now be carried out. To ensure complete independence, openness and transparency into this investigation, West Mercia police has decided that this investigation will be led by a Warwickshire police lead investigator.”

Asked if its officers denied the allegations, West Mercia police said: “This is an ongoing investigation and therefore it would be inappropriate to comment further on this matter at this time.”

The force said the officers were on full duties, with no restrictions. “All three officers currently remain serving police officers and are not suspended from duty at this time. This decision will be regularly reviewed by the appropriate authority for West Mercia police.”

Sarah Cooper, the new chair of West Mercia Police Federation, said: “As a newly elected chair, with new members of the board also being elected to support me, I am fully committed to being open and transparent about the way we operate.

“Working with our PFEW headquarters I am keen to ensure our practices are open to scrutiny. One of our roles will be to review our governance and practices and to ensure that all federation members are aware of the responsibility [that comes with] being a federation representative. I take that role very seriously.”