A leaked report alleges the Australian Federation of Islamic Councils is artificially inflating rents to milk federal and state government funds from the popular Malek Fahd school in western Sydney, possibly contrary to government rules.
The report obtained by The Weekend Australian says AFIC, which advises the Howard Government on Islamic issues, should seek legal advice about the $900,000 in rent it charges the school a year - up to four times more than average commercial rates.
The private school, which receives more public funds than any other in NSW, is situated on land owned by AFIC. While it operates as a separate non-profit organisation, it has four AFIC executives or office holders on its governing board.
AFIC charges the school rent, accounting fees, cleaning costs and other charges which provide two-thirds of AFIC’s budget of more than $2 million a year.
The school receives $11 million a year from the federal Government on condition the funds are used only for educational purposes and the school only uses surplus profits for its own activities.
But the investigation into AFIC’s finances by forensic accountant Robert Smith reveals that the rental income is used to support the political activities of dozens of Muslim groups in the country.
“Arguably there is a diversion of ‘profit’ from the school to AFIC,” Mr Smith warns in his report, prepared for AFIC.
“Such a diversion is what I have speculated that governments will be concerned about - educational funding being diverted to other entities for purposes other than education.”
AFIC has nine Islamic councils and dozens of smaller affiliates as members. It spends its funds on a range of activities, including grants to Islamic societies and donations to individual imams around the country.
The chief executive officer of AFIC, Amjad Mehboob, said Mr Smith had got it wrong.
“He overstepped the mark, he did not have enough information to support that conclusion,” Mr Mehboob said. “He did not get all the facts.”
Mr Mehboob also pointed out that Mr Smith found no evidence of wrongdoing or corruption within AFIC.
Mr Smith, managing director of Sydney-based accounting firm Worrells, was commissioned to prepare a report on AFIC’s finances after a split between members at last year’s AFIC annual general meeting.
Some members called for the inquiry after concerns were raised about payments being made to executive committee members and alleged conflicts of interest with associates of the executive committee.
There was also concern that the rent charged to Malek Fahd, which has about 1750 students from kindergarten to Year 12, was to rise even higher to $1.5 million a year.
Mr Smith was commissioned to examine AFIC’s accounts, its schools, its adherence to its own constitution and the corporations law, and to probe all payments made in the past six years to AFIC executive committee members, contractors and associates.
AFIC was compelled to hand over documents and give Mr Smith access to its financial accounts.
AFIC has increased the rent by more than 1000 per cent on the 3.62ha property leased by Malek Fahd. It rose from $67,500 in 1999 to $418,750 in 2000 and then $900,000 in 2001, where it has remained.
But the property, zoned general rural, has a current unimproved land value recorded by the Bankstown Council - which has not been reviewed since 1992 - of $3 million. Local real estate agents told The Weekend Australian this value would give it an annual average rental return of about $240,000.
Mr Smith warned AFIC it was charging the Sydney school based on an “improved land value”, believed to be $5.1 million, even though AFIC had made no contribution to those improvements.
Mr Mehboob told The Weekend Australian AFIC had not charged rent in the early years after AFIC founded the school in the early 1990s.
He also said AFIC had a valuation done on the property and the valuer recommended that Malek Fahd be charged more than the $900,000 rent.
Mr Smith wrote that during his inquiries he was “continually informed of the need for confidentiality”.
“It was clear to me that people were happy to talk about certain issues behind closed doors but not in a public forum,” he wrote in his 37-page report. “Many people expressed concern about perceived conflicts of interest where persons associated with AFIC were appointed to provide goods and services.”
But Mr Mehboob said AFIC was an open and transparent organisation that “had nothing to hide”.
Mr Smith’s report found that some of AFIC’s accounting practices were breaching its own constitution. Payments were being made without the proper authority and in some cases, where there was no access to documentation, it could not be determined if AFIC was complying with the Corporations Law.
AFIC declined to respond to questions about perceived conflicts of interest.