Interview on 2GB Breakfast with Chris Smith
AAT decision on Malek Fahd Islamic School funding

Chris Smith: I mentioned to you earlier the complete arrogance of Australia’s largest Islamic school after their annual funding was removed. The Federal Government announced that they would no longer provide $19 million in annual grants to Malek Fahd – this is the school – after the Administrative Appeals Tribunal found the school had been funnelling profits to the Federation of Islamic Councils. Now, all money that was meant to be given to the educational campuses in Greenacre, Beaumont Hill and Hoxton Park, it was for the kids and the kids only, not to the Federation of Islamic Councils to build more mosques. The college now faces closure, which would leave 2500 students completely stranded, without a place to learn. 

Federal Education Minister Simon Birmingham now hopes to recover $76 million in taxpayers’ money, paid to Malek Fahd between 2012 and 2015. Minister Birmingham joins me on the line right now. 

Minister, good morning to you. 

Simon Birmingham: Good morning Chris, and happy new year to your listeners. 

Chris Smith: Good luck recovering $76 million.

Simon Birmingham: Well Chris, that’s the totality of payments made over a number of years. What we’ll be doing now that we have secured this ruling from the Administrative Appeals Tribunal to cease current and further funding, is we’ll seek legal advice about how much could be recovered and how we can go about best recovering that, of funds that may have been provided and misused over recent years.

Chris Smith: Okay, so it’s not just $19 million in annual grants that they have misused, it’s the entire $76 million?

Simon Birmingham: No, no, the point I’m making there Chris is that that is the entirety of funding they’ve received over about three years, three or four years. Now of course, much of that would’ve been used genuinely for the education of students.

Chris Smith: You’d hope so.

Simon Birmingham: So we’ll be going back now with legal advice, looking over the audit trail that we’ve undertaken to assess if there are, within the Act, provisions that allow us to recover some of that funding, and if so how much is justifiable to recover in terms of what has been misused versus the funding that of course has genuinely gone to student wellbeing and education. 

Chris Smith: It is out and out premeditated fraud, isn’t it?

Simon Birmingham: Well this is a terrible, terrible example, and the ruling of the Administrative Appeals Tribunal is very strong in upholding the findings of my department’s audit processes, which were that there has been funding funnelled from the school into AFIC in a for-profit environment. Now of course, every single dollar of taxpayers’ funding that goes into school education is intended for the welfare, wellbeing and educational development of students alone. 

Now, I recognise there are of course innocent students, parents, families, hard-working teachers involved in the school here, and it’s terribly distressing, I’ve no doubt, for them to have this circumstance. But the important principle is that government funding for schools should be applied purely for the benefit of the students, and in this case it’s very clear now that deals were set up to funnel money into the Australian Federation of Islamic Councils – AFIC – and that those deals are ongoing, which is why future funding is not tenable at this point.

Chris Smith: Are you able to determine who actually initiated the deals? Was it the school or the Federation of Islamic Councils?

Simon Birmingham: Those matters I guess have been canvassed to some extent in the terms of the judgment. It is clear that those arrangements were struck under previous boards, but some of our concerns about the governance structures that this school had in place have been addressed over the last 12 months. They’ve got a new board, they have sought to do a number of things, and indeed they are taking AFIC to court over certain matters. But there are lease deals that are completely non-commercial in terms of their nature, they are overly generous to AFIC, with up-front payments and excessive payments, and those lease arrangements are really the [indistinct] …

Chris Smith: [Interrupts] So who initiated this? Was it the board, the previous board, or the Federation of Islamic Councils?

Simon Birmingham: Well there was a fair overlap under the previous board between the two entities, so there are a lot of familiar faces and names. 

Chris Smith: And just thinking about the students for one moment, I’d presume that if you’re going to pull funding the students have nowhere to go. What arrangements are being organised between your department and the state Department of Education?

Simon Birmingham: Chris, look, at this stage the school is at least sounding like it’s intending to open as normal this year; we’ll see how that plays over coming days and weeks though.

Chris Smith: Well maybe the Federation of Islamic Councils could give some of the money back to the school so they could operate as one?

Simon Birmingham: And the school board yesterday called on AFIC to hand over the land in question, to end this uncommercial lease arrangement and to actually recognise that it is the behaviour of AFIC that is really putting the school’s future in jeopardy. But look, we have been working since early last year, when I made this first determination with the department, that we have contingencies in place through the New South Wales Education Department to help families if students are displaced by a closure. And of course, that means they’ve had to look at availability in other nearby public and non-government schools as to how they would help relocate those students, but we’ll take one step at a time. However, Minister Piccoli and I have been in communication with each other, as well as our departments, to make sure that we’re ready to help depending on what eventuates and unfolds. 

Chris Smith: All right. You’re after $76 million from them; you know that $19 million in annual grants will be pulled because of their actions in funnelling the money to the Federation of Islamic Councils. Do we know whether we could’ve stopped this earlier?

Simon Birmingham: Look, I think the identification of it happened at a relatively early stage. The audit process for these matters was commenced back in 2015. We then took action early last year [indistinct] …

Chris Smith: [Interrupts] So there was no delay based on some kind of sensitivity to the Islamic community?

Simon Birmingham: Absolutely not. So normal processes that would’ve been followed for any non-government school where we had concerns that they were not adhering to the strict standards of governance probity, not-for-profit status that we expect, would have had exactly the same conditions applied. They do involve a number of opportunities for the school to respond to our concerns, as you would expect, to provide evidence and information to argue their case. But ultimately the decision was made early last year in relation to this matter. The Administrative Appeals Tribunal hearings dragged through the totality of the rest of last year, and we only got this verdict late last year on 23 December, which became public yesterday.

Chris Smith: What are the possibilities of criminal charges being laid on individuals for fraud?

Simon Birmingham: We’ll have to, as we go through the process of looking at recovery of funds, have a look at all of those matters in terms of our legal advice. They would be matters that, if there is scope, of course the department will refer that off to the relevant authorities to take a closer look at, particularly the AFP.

Chris Smith: Because looking at some of the details which have come out of the tribunal, it looks awfully premeditated and gross. For instance, over the past two decades Malek Fahd agreed repeatedly to pay higher rents to the Islamic Council, provided them with an unsecured $1.42 million loan – which was never repaid – and handed over years of rent in advance without any formal lease. One group, Muslims Australia, reported a $2 million profit in 2015, when it charged the school $112,256 in administration fees, plus $3 million in rent. And some of the funding was also given to maintaining several mosques and paying staff salaries in Muslim community groups. It was fairly elaborately set up and deliberate by the sound of it.

Simon Birmingham: Indeed. Look, it looks terribly premeditated. The deals are grotesque in terms of the misuse of funds that should have been applied to the welfare of students in that school. We have to take one step at a time through this, and obviously the most important thing was to ensure that our determination that the funding to the school needed to cease was upheld. Happily that has been the case. Now, that gives us strong ground upon which to have a look at all of the other factors in terms of, as we’ve canvassed, the recovery of funding, whether there are any other proceedings that ought be initiated. But it does demonstrate, in this school in particular, a real problem. 

There were six schools established, or influenced, or controlled by AFIC across the nation that we audited. Three of those schools are now operating under very strict conditions that have been put in place, another two have been served show cause notices as to why their funding should not be withdrawn due to failure to necessarily comply with all of those conditions. And so we’re certainly throwing every possible resource at making sure that the high standards people expect public funding in Australia to have applied to it are upheld. 

Chris Smith: It’s massive arrogance and massive fraud to think that all these schools had to have some kind of deal with the Federation of Islamic Councils, almost like you must give your money to the mother ship, you know? And you just think to yourself, well how many other schools have gotten away with this?

Simon Birmingham: It is absolutely terrible arrogance. Now [indistinct] …

Chris Smith: [Interrupts] Have we had examples of this with other religious-based schools before in this country?

Simon Birmingham: Look I don’t think there are examples of this scale in that sense. There have been minor cases over the years where we’ve had to work to enforce certain standards and address concerns in relations to probity, governance and financial management issues. But obviously across a series of six different schools and a school as large as Malek Fahd and the scale of some of the funding involved is very significant, and completely, completely unacceptable. Which is why we’ve not taken a backward step, we won’t take a backwards step in terms of doing everything possible to protect the interests of taxpayers. 

Australia is a generous country when it comes to supporting the choice of parents to send their children to a school that is appropriate for their circumstances, and that includes supporting non-government schools of many, many different faiths. But with that comes responsibilities to stick to the national curriculum and use that funding appropriately for the wellbeing of students.

Chris Smith: All right, good luck chasing that $76 million. Thank you very much for your time this morning. 

Simon Birmingham: Chris, a pleasure.

Chris Smith: All right, the Federal Education Minister Simon Birmingham.