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08 September 2011

Sydney Islamic school told of payment breaches

THE principal of a Sydney Islamic school that has been paying millions of dollars in rental and management fees to Australia's peak Muslim body was given advice three years ago that the practice was likely to be in breach of government guidelines

In a 2008 letter to Malek Islamic School principal Intaj Ali, lawyers advised that the movement of millions of dollars from the school to the Australian Federation of Islamic Councils may have contravened legislation governing the use of federal and state grants.

AFIC president Ikebal Patel said yesterday the legal advice "did ring a bell" but he "could not recall" what his reaction was when presented with it.

The Australian understands Dr Ali sought the advice from Minter Ellison in a bid to stop AFIC borrowing money from the school and charging the excessive rents and management fees that allowed the Muslim body to buy further properties that it would, in turn, lease back to the school as campuses for more rent.

Last month The Australian revealed that AFIC had charged the successful Sydney school $5.2 million, including $3.2m in current and backdated "management fees".

In 2009, AFIC changed the lease agreement to increase the school's rent from $1.3m to $1.5m, forcing an immediate backdated payment of $2.59m.

Malek Fahd is a predominantly government-funded school, receiving $19.6m from taxpayers last year, with public funding accounting for 75 per cent of the school's total funding.

In order to continue to be eligible for state and federal grants, the school must comply with legislation stating how the funds should be spent. The money is supposed to be spent on educational purposes and salaries.

While AFIC owns the land, Malek Fahd is a separate legal entity and a recipient of the government funding. Both AFIC and the school are not-for-profit.

Following the revelations, School Education Minister Peter Garrett has launched an investigation into the rental agreements and management fees paid by Malek Fahd, and the seven other AFIC schools in Australia. In its advice to Dr Ali, who has been principal of the school since 1990, Minter Ellison stated: "There is no provision under the guidelines that permits MFIS to allow such funding to be provided to a third party such as AFIC or to be directed towards the development of other schools."

Despite the advice, in 2008 $7.5m was transferred to AFIC from Malek Fahd in advance rent for the purchase of a new Hoxton Park campus that was purchased for $4.97m that June.

The former chairman of directors of Malek Fahd, Hafez Malas, said he was dismissed by AFIC in May after he refused to agree to the transfer. Mr Patel said his priority was to establish another campus to allow the "3000 children on the waiting list" to go to the school.

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