Australia’s largest Islamic school should no longer be allowed to receive federal funding, the administrative appeals tribunal has ruled.

It means the school in Sydney’s west may be forced to close.

The tribunal has affirmed the education department’s decision to revoke approval for Malek Fahd Islamic school to receive federal funding after allegations of financial mismanagement.

Simon Birmingham, the federal education minister, has welcomed the ruling, saying the school had been operating for profit in breach of the Australian Education Act.

“Australians rightly expect that every taxpayer dollar committed to school education is genuinely expended on school education,” Birmingham said. “School governance should be of the highest standard and funding should be exclusively used for the education and welfare of students.

“Our attention now turns to working with the students and their families, the teachers and the whole school community about how we best support them through this difficult time.”

The Turnbull government pulled $19m in funding to Malek Fahd in February last year after it was found to be operating as a “for-profit” organisation.



The decision was referred to the administrative appeals tribunal but the tribunal found the school was being run for profit and was not a fit and proper organisation.

Bernard McCabe, the tribunal’s deputy president, said Malek Fahd appeared to be a good school with community support. But contractual relationships with the Australian Federation of Islamic Councils means government funding would continue to leak from the school to the federation.

“The only appropriate course is to affirm the decision [to revoke federal funding],” McCabe wrote in his ruling. “That is a hard outcome for [Malek Fahd] and for the students and community it serves. But the ultimate responsibility must be laid at the door of the previous management of [the school].”

Malek Fahd operates over three campuses in Sydney’s west in Greenacre, Hoxton Park and Beaumont Hills. It has more than 2,500 students enrolled in classes ranging from kindergarten to year 12, and employs a large number of staff.

Between 2012 and 2015, it received more than $76m in financial assistance from the commonwealth, as well as money from the New South Wales government and tuition income from parents.

The commonwealth is its largest source of funding. It is estimated roughly two-thirds of its income in 2014-15 came from the federal government.