Six Islamic schools in Australia that rely on government grants for survival are set to lose their tax payer-funded revenue after an audit found them to be operating for profit.

The schools are all affiliated with the Australian Federation of Islamic Councils (AFIC) and one has claimed in its defence that being asked to repay an outstanding government loan is racist.

On Friday, the AFIC schools were formally issued with notifications of non-compliance with the financial management and governance requirements of the Australian Education Act.

According to The Sydney Morning Herald, the notices come after a six-month investigation by the Federal Department of Education sparked by a string of sackings among senior staff members and principals, allegations of financial mismanagement and concerns over the delivery of the curriculum.

“This action does not come lightly,” Education Minister Simon Birmingham said on Friday. “All schools must have effective management and accountability arrangements in place to support the best possible education outcomes for their students.

“My focus is always that we, as the tax payer, get maximum bang for our buck to improve education outcomes for Australian children.”

The Islamic College of Brisbane, the Islamic College of South Australia, the Islamic School of Canberra and Langford Islamic College in Western Australia have been issued with non-compliance notices. They join Malek Fahd in Sydney’s south-west and the Islamic College of Melbourne in Victoria on the list of schools to be warned.

Malek Fahd in the south-western Sydney suburb of Greenacre has also been embroiled in a separate legal dispute with the NSW Department of Education, after it accused the state government of breaching racial discrimination laws in ordering it to repay $8.5 million in taxpayer funding.

Overall the school receives about $20m a year from state and federal governments, with taxpayer funds making up 80 per cent of the school’s funding.

My School records show the Australian government provided about $5.5m in recurrent funding to the Islamic College of Brisbane in 2013; $3.7m to the Islamic College of Melbourne; $5.6m to the Islamic College of South Australia; $663,000 to the Islamic School of Canberra; and $3m to the Langford Islamic College.

The records also indicate the Malek Fahd Islamic School, which has three campuses, received $17.5m in the same year.

The NSW State Education Minister, Adrian Piccoli, suspended government funding in 2011 after he declared it had been unlawfully operating for profit not charitable purposes by overcharging for rent and school director’s fees.

The six schools have 28 days to respond to the findings of the audit.