O'Farrell government freezes Islamic school's funding

FUNDING to an Islamic school has been frozen after an audit found the owners were charging millions of dollars in improper fees.

THE NSW government has frozen funding to Sydney's largest Islamic school after an Education Department audit found the school's owners were charging the school millions of dollars in improper fees.

The department last night confirmed it had ceased funding of about $4.5 million to Malek Fahd school, after an investigation into the payments the school made in management fees and backdated rental fees to its owner, the Australian Federation of Islamic Councils, the nation's peak Muslim body.

In August last year, The Australian revealed that the Malek Fahd school in Greenacre in Sydney's southwest had handed over $5.2m in fees to AFIC, in what the audit established was in breach of government funding guidelines.

A spokesman for the department said last night that following the audit -- and the explanation given by the school's management -- funding had been frozen for the school.

"After receiving information from the school, the department provided advice to the minister, who approved the formation of an independent review panel to evaluate the school's compliance with the not-for-profit requirements," the spokesman said.

"Until the outcome of the panel's report is known, funding has been suspended."

It is understood the investigative panel is looking at how and where government funds have been funnelled from the school, and how the school could continue to be funded by the state government in the future.

The school will continue to operate with commonwealth funding. A spokesman for Federal Education Minister Peter Garrett said the federal government would provide $12m a year, with funds from school fees and other income accounting for another quarter of the school's funds.

According to the school's financial statement, it received a total of $19.6m in state and federal government funding in 2010, accounting for 74 per cent of the school's overall funding, with just over $4m being provided by the state government.

According to documents obtained through the Australian Securities & Investments Commission, in 2010 the school paid $3.15m in unexplained "management fees" to AFIC, which included $2.2m in "management fees back charge".

The school was also charged $2.59m in back rent after it retrospectively altered a lease agreement for the school land in 2009.

In 2008, a lease was signed between the school and AFIC that set annual rent for the Greenacre property at $1.3m, but documents show that in 2009 the agreement was backdated to 2004 to $1.5m a year, resulting in a separate $2.59m payment to AFIC.

Malek Fahd is characterised as an independent school for the purposes of funding, and is a separate legal entity from the land owner AFIC. Government funding is provided to the school, and both the school and AFIC are not-for-profit organisations, entitling them to tax concessions.

Following the reports in The Australian, the state government passed a bill sponsored by Greens MP John Kaye stating that the school had breached the NSW education act by paying the fees.

AFIC president Ikebal Patel, who is also chairman of directors of the school, initially refused to comment on the payments from the school when asked by The Australian, but later said the payments were "simply the formalisation of some pre-existing arrangements and the recovery of some assistance given to Malek Fahd and other schools as they were starting out".

"AFIC has a policy of recovering this assistance when the school is in a position to repay it so that AFIC can use these funds to assist in the establishment of additional schools," he said in August last year.

Mr Patel did not return calls from The Australian last night.

The school's board also boasts several other AFIC executives, including vice-president Hafez Kassem, treasurer Mohamed Masood and assistant treasurer Ashraf Usman Ali.

Mr Garrett has also launched a federal investigation into AFIC schools nationwide, with details of the audit report expected to be handed down shortly.

The Australian Federal Police has confirmed it is investigating Canberra Islamic Primary School, of which Mr Patel is also chairman of the board.

Police are investigating how a forged letter of support, supposedly from an ACT Islamic leader and senior tax office official, entered into an application for the Canberra Islamic school to expand into a high school last year.

Malek Fahd, which has almost 2000 students, has been hailed a success in Muslim education, with the school finishing sixth in the state in mathematics last year.

Last night, the school's principal, Intaj Ali, provided no comment over the latest developments, but The Australian understands he and other senior members of the school have long been concerned about the fees being charged by AFIC.

Mr Patel is leaving the presidency of AFIC after the expiry of his term this year, but is running as vice-president and secretary of the AFIC executive committee.

A vote on the presidency will take place this weekend. It was brought forward following concerns from AFIC members about the current leadership of AFIC.