A draft report obtained exclusively by Lateline has found evidence that taxpayer funds for Catholic schools are being directed away from poor dioceses and into more popular schools.

Key points: Draft report says fund distribution not always fair

Draft report says fund distribution not always fair Warns taxpayer funds must only go towards education

Warns taxpayer funds must only go towards education Calls for new body to oversee administration and distribution of funding to schools

The internal report, by Kathryn Greiner on behalf of the New South Wales and ACT Catholic Bishops, also contains a warning Commonwealth funds must only go towards education and not to broader parish operations.

It suggests the way funds are pooled and redistributed is not always fair, citing "evidence that resources for quality education are being captured in the more populous dioceses … to the detriment of the greater need in the rural and remote dioceses."

It points to another report commissioned in 2015, which found the Wilcannia Forbes Dioceses in western New South Wales — one of the most disadvantaged in the state — received a funding decrease.

"Wilcannia-Forbes is by most measures the most disadvantaged of the Dioceses, yet the long-term model delivered a funding decrease," the report said.

Lack of transparency

The Greiner report spells out that Commonwealth legislation requires, "any state and commonwealth funding to be quarantined from any parish/diocesan work".

There is no direct accusation of misappropriation in the report but the warning alone highlights a lack of transparency in the Catholic school funding system.

Few people know how much each school is actually getting or even whether every dollar is being spent appropriately.

The Greiner report has labelled current governance structures within the NSW Catholic schools as "flawed" and "inadequate".

"A fundamental tension exists between the understandable wish for each Diocese to maintain the ability to independently govern, while still reaping the benefits of a collective approach in various matters, such as the allocation of funds," the report said.

"It is a tension that is becoming irreconcilable with both a contemporary understanding of good corporate governance and basic compliance with legislative obligations across not only funding distribution, but also a range of other areas including privacy and child protection."

The report calls for the establishment of a new authority, "to ensure school funding is being specifically directed to the education of students and for no other purpose, on the basis of need and in compliance with the Australian Education Act 2013."

Gonski 2.0 fight

Ross Fox, the director of Catholic Education in Canberra and Goulburn, told Lateline that funds are allocated on a needs basis already.

"They stretch every dollar, to make it work, to provide the best teaching and learning for children," he said.

He said school funding is subject to strict legislation and there was no way it was being diverted to other parish activities.

"This is an essential point. Parents need to have confidence in our use of school funds and in New South Wales it's illegal. People should be going to jail if that's occurring so there's no question. It is not occurring," he said.

The draft report comes as Catholic schools mobilise for a major campaign against Prime Minister Malcolm Turnbull's so-called Gonski 2.0 funding arrangements.

Under the new funding model, Catholic schools will receive an additional $1.2 billion over four years.

But the National Catholic Education Commission is unhappy with the move to a single, national needs-based funding model.

"We think the Commonwealth is seeking to undermine some pretty fundamental elements of Catholic education system funding," acting executive director Danielle Cronin said.

"Catholic Education has been a system for decades and has used a particular mechanism in federal funding formulas to ensure it can disburse funds to schools in an equitable and efficient way."