The former Liberal minister Bruce Billson should be censured for failing to declare he was employed and paid by a business lobby group before he quit parliament, the privileges committee has found.

In a report tabled on Monday, the Coalition-controlled committee criticised the former small business minister for ignoring “the primacy of the public interest” in taking and failing to disclose paid lobbying work because he “misunderstood” his obligations.

Billson – who was dumped from cabinet in September 2015 – took a job at the Franchise Council of Australia (FCA) in March 2016 but did not leave parliament until 9 May.

The committee found Billson failed to disclose to parliament’s register of interests that he had started drawing a $75,000-a-year salary as executive chairman and independent director of the FCA. Billson also revealed to the committee that he had provided services to the FCA through his company Agile Advisory.

In October the Department of the Prime Minister and Cabinet cleared Billson of breaching ministerial guidelines and the lobbying code of conduct but the privileges committee found the jobs were registrable interests that he failed to declare.

The report noted there was a “prima facie case that [Billson] is guilty of contempt” because he did not declare the interests within 28 days, including a $6,250 payment in April 2016.

But the committee found he was not in contempt because his conduct did not show “any intention to interfere with the free exercise” of functions of the house and there was “no clear evidence” he had been improperly influenced.

Billson submitted the failure was an “administrative error and oversight” and wrote to the Speaker apologising for the “discourtesy to the house this represents”.

The committee found that Billson “misunderstood his obligations” but despite efforts of the committee to explain “the primacy of the public interest ... Billson is choosing to ignore the committee’s explanation of those obligations to him”.

The deputy chairman of the privileges committee, the Labor MP Pat Conroy, told the lower house that Billson’s correspondence revealed he “still does not understand that beyond an actual conflict of interest ... there was most definitely a perception of a conflict of interest”.

The report said it was of “considerable concern” that Billson “should so manifestly misunderstand the potential for concerns about appropriate conduct when accepting paid outside employment”.

“The committee’s view is that it would have been more appropriate for Mr Billson not to accept paid employment with the FCA while he was a member of the house,” it said. “His decision to accept the role with FCA while he was a member falls below the standards expected of a member of the house.”

The committee recommended that standing orders should include an express prohibition on a member “engaging in lobbying services for reward while still a member of the house”.

Conroy told the lower house that “acceptance of payments for services to represent the FCA represented a conflict of interest with [Billson’s] duty as a member of parliament”.

“It was very clear that he, Mr Billson, generated a perceived conflict of interest,” Conroy said. “It’s clear Mr Billson damaged the reputation of himself, sadly, and the parliament by not understanding at a minimum there was a perception of a conflict of interest.”

An FCA spokeswoman welcomed the committee’s conclusion that no finding of contempt can be made.

“The FCA and Mr Billson demonstrated that during the weeks when Mr Billson’s widely publicised appointment as a director and executive chair overlapped with the end of his term as a MP, there was no improper influence, advocacy, lobbying or impact on the free performance by Mr Billson of his parliamentary duties,” she said.

Guardian Australia has contacted the leader of the house, Christopher Pyne, to determine if and when the government will act on the recommendation to censure Billson.