NSW Labor Party general secretary Kaila Murnain has been suspended after telling the Independent Commission Against Corruption that she covered up an MP’s confession about an illegal $100,000 donation.

The leader of the parliamentary Labor party, Jodi McKay, announced late Wednesday she was “taking steps to clean up the mess at ALP head office” saying she had been appalled by three days of evidence before Icac.

“I have … asked the party officers to convene a meeting tonight to suspend Kaila Murnain as General Secretary, as I no longer have confidence in her judgement.”

The NSW branch of the ALP later released a statement saying Murnain had been removed and the party was doing everything it could to assist Icac with its inquiries.

“We are committed to doing the right thing and to support necessary regulatory change to ensure the integrity of our political system,” the statement said.

Pat Garcia has been appointed acting secretary.

In evidence before the Icac’s investigation into prohibited political donations, Murnain said on Wednesday she was told to cover up a “distressed” state MP’s extraordinary confession that banned Chinese donor Huang Xiangmo made secret payments to the party.

Murnain told the commission of a September 2016 meeting out the back of state parliament with the state MP Ernest Wong.

Wong told her Huang, who is banned from donating to NSW political parties because he is a property developer, had given Labor large donations, and that other donors had lied about their own contributions.

The extraordinary meeting prompted Murnain to immediately call the then Labor senator Sam Dastyari, who came and picked her up from state parliament, drove around with her for five minutes, and advised her to “go and see your lawyers”. Murnain said she went to see Labor’s lawyer Ian Robertson. She was upset and recounted what Wong had told her.

“At the end of the conversation, Ian said to me ‘there is no need to do anything from here. Don’t record this meeting. Don’t put it in your diary. Forget the conversation happened with Ernest. I wont be billing you for this either … and don’t tell anyone about it.’”

Robertson is the national managing partner for Holding Redlich. Robertson has not yet had a chance to give evidence and the inquiry heard that Murnain’s evidence only formed one part of the matter.

Robertson’s lawyers said they planned to cross-examine Murnain about her evidence.

Wong had been intimately involved in organising a Chinese Friends of Labor fundraising dinner in March 2015, attended by Huang, and former Labor leaders Bill Shorten and Luke Foley. Icac is examining whether Labor used a series of straw donors, or fake donors, to mask a $100,000 contribution from Huang.

Murnain remembered Wong was “sweating, he just seem upset, quite upset” when the pair met in 2016. He was “agitated and speaking quite quickly”.

“Ernest was quite distressed,” Murnain said. “He sort of just blurted out that a donor who had said they had given money to the Labor party had not actually given money to the Labor party.”

Murnain said she responded:

“What the shit?”

“I just said ‘Who donated the money?’. He said very quickly ‘Mr Huang.’ I don’t remember if I had asked him how much the donation was for.”

Murnain said it quickly dawned on her “what all this meant”.

“That a significant donor had made a donation to our state campaign account who was a prohibited donor.”

The Icac has previously heard Huang brought an Aldi bag containing $100,000 cash to Labor’s Sydney headquarters in April 2015, several weeks after the fundraising dinner.

Labor staffer Kenrick Cheah has alleged Murnain, then the assistant general secretary, saw him with the cash and the Aldi bag following Huang’s visit. Cheah said Murnain told him to “be careful” when taking the money home.

Murnain said she cannot recall any such conversation. She also could not recall seeing an Aldi bag with cash or Huang coming to the Labor Sussex Street headquarters. She said she wouldn’t have known who Huang was.

“I don’t think I actually saw the Aldi bag,” Murnain said. “But I honestly just don’t remember that.”

Murnain agreed it would be “out of the ordinary” for $100,000 cash to be given to NSW Labor at any one point, but said she could not recall when she first became aware of the substantial donation.

“I just don’t remember at what point I became aware, it was so long ago.”

The chief commissioner, Peter Hall, indicated he would be calling Cheah back to give evidence in the wake of Murnain’s appearance, likely on Thursday.

Official Labor records claim the $100,000 came from 20 individual $5,000 donations, made by 12 separate donors at the Chinese Friends of Labor dinner.

The head table at a Labor fundraiser dinner in March 2015, picturing former opposition leaders Bill Shorten (third from left), Luke Foley (far right) and Huang Xiangmo (second from right). Photograph: Ernest Wong/Supplied by ICAC

Earlier on Wednesday, one of those 12 donors, Steve Tong, said he had never given Labor $5,000. He said he had been “dumbfounded” to receive an invoice for the donation.

“I was a bit dumbfounded because I thought ‘When did I donate money to the Labor party?’” Tong said, through an interpreter.

Tong worked for Wu International, a property developer he said had “very close” links to Wong.

He later discovered his superiors had made the donation and put his name to it, but said he feared he would be the target of revenge “by some scoundrel” if he spoke out, and was told by his bosses to go along with it.

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“He said if anything happens then the company will hire a lawyer to deal with the matter for you,” Tong said.

“I was told that anything you do for the company, you just do it. If anything happens, we will deal with it for you. You just do it.”

One of Tong’s bosses, Quanbao “Leo” Liao, killed himself before giving evidence to Icac investigators last year.

Tong said he went to Liao, and another of his superiors, Alex Wu, when the NSW Electoral Commission later asked him for records of the donation.

He said his superiors helped him fill out documents lying to the electoral commission about the donation.

“I was telling lies to the electoral commission and the company told me that if anything happens, they would take care of it for me, so I just followed what they asked me to do,” Tong said.

He said he was now deciding to tell the truth to Icac on the advice of his lawyer, his wife, and because he was not a good liar.

Tong is now the second of the 12 donors to claim he did not give $5,000 to Labor, despite records suggesting the contrary.

To “Stanley” Yip, who runs a souvenir store in Haymarket, has told investigators with the NSW Electoral Commission – which investigated the matter before referring it to Icac – that he never made the donation.

“The only money I spent on the Labor party was the $500 for a single seat at the table,” he said. “At no time did [I] donate $5,000. I don’t have that much money to spend on these things.”

Further evidence given to Icac suggests it was extremely unlikely that Labor would receive cash donations as large as $5,000 at dinner events. The former NSW Labor fundraising manager, Patty Barrett, who worked for the party between 2009 and 2016, said she had never seen cash donations that large at any point.

“During my entire employment with the ALP NSW branch, I have never seen or heard of any individual person or company donating $5,000 in cash at any fundraising dinner or event,” Barrett told Icac in a statement. “If this would have occurred, I definitely would recall it.”

She also said it would be “highly unusual” for money raised at a fundraising dinner to be delivered to NSW Labor headquarters a month later. Evidence suggests Huang arrived at Labor’s head office with the $100,000 in April, more than three weeks after the March fundraising dinner.

The inquiry continues before chief commissioner Peter Hall. Murnain is continuing to give evidence and Tong will return to give evidence next week.