Whistle-blowing union official Kathy Jackson has denied she kept money that should have gone to underpaid workers to use in a slush fund.

However, the unions corruption royal commission has heard Ms Jackson used money from the fund for personal expenses and is unable to explain what several large withdrawals from the fund were for.

Ms Jackson, who is national secretary of the corruption-plagued Health Services Union (HSU), said on Thursday that the organisation was entitled to a $250,000 “windfall” payment received as settlement of an industrial action in 2003.

The money was a penalty paid by the Peter MacCallum Cancer Institute after the HSU commenced legal action to recover underpaid wages for the institute’s employees.

Ms Jackson said workers received a separate settlement.

“They got their own settlement in respect of their outstanding entitlements. There was millions of dollars,” she told the commission.

The $250,000 paid to the union was a penalty payment it was entitled to receive for bringing the industrial action.

Ms Jackson said media reports that “somehow the union took this money and we put it away” were wrong.

“That did not happen,” she said.

The $250,000 was directed to a fund, the National Health Development Account (NHDA), that Ms Jackson set up.

She intended to make it an incorporated association, governed by rules, but “never got around to it”.

Ms Jackson, who received a $270,000 salary, said she was authorised to use $4000 from the fund for personal expenses to cover overtime and forgone fees for attending union committee meetings.

Ms Jackson said she made payments from the fund for doctors and to Kip McGrath Education, a tutoring service, “as part of my $4000”.

When presented with documents showing two transfers of $8000 each, made in December 2007 from union accounts to the NHDA, Ms Jackson said she imagined they would have been for spending on Christmas parties.

However, Commissioner Dyson Heydon pointed out that while the monies were put into the fund before Christmas, no money was withdrawn from the fund until March 2008.

Ms Jackson has told the commission she kept all her records of NHDA spending in an exercise book that disappeared after her office was ransacked in 2011.

The hearing in Sydney continues.