Catholic and other non-government school systems are short-changing some of their neediest schools by hundreds of thousands of dollars a year, a scathing audit has found.
One struggling Lutheran school received just over a quarter of the funding allocated by the federal government under its needs-based model, missing out on more than $1.2 million.
The government funds many non-government schools directly, but those which are part of a network - such as Catholic schools - receive money from a lump sum delivered to that network's central authority.
The Australian National Audit Office found those central authorities were redistributing the federal funding as they saw fit, short-changing some schools and boosting funds to others.
St John's Lutheran Primary School in Jindera, NSW, received only 28 per cent of the funding it was allocated, $469,000 instead of $1.7 million.
In Victoria, the disadvantaged St Patrick's School in St Arnaud was meant to receive $1.23 million, but instead received $727,143 from the Victorian Catholic Education Commission.
Conversely, some disadvantaged schools received significantly more funding than they were allocated.
Cathedral College Wangaratta was allocated $4.6 million, but received $8.9 million.
The audit found 11 per cent of schools funded through a central body received at least 10 per cent more funding than they were allocated by the department in 2015.
And 12 per cent received at least 10 per cent less than what was allocated.
The National Audit Office said the education department had failed to set up "sufficiently robust arrangements" to ensure school systems had needs-based funding arrangements that complied with the law.
Only nine of 33 education authorities had published details of how they distributed government money among their schools.
"Overall, the arrangements established by the department have not delivered the level of transparency and accountability envisaged," the audit concluded.
Federal Education Minister Simon Birmingham said the report reinforced the need for the Turnbull government's overhaul of the system.
"Despite calls from state education authorities to reduce the regulatory burden of accountability for Commonwealth funding, it's clear strong oversight is needed," he said.
"Taxpayers must have confidence their investment in education is being used effectively and appropriately."
National Catholic Education Commission director Christian Zahra said the current funding model did not properly assess need. He said state and territory Catholic systems had their own redistribution model, which assessed local needs with input from the school community.
"This is a much better way of assessing the local needs of schools than relying on a formula that many people accept has several serious flaws and is based on averages rather than the reality of schools and the communities they serve," he said.
Independent Schools Council of Australia executive director Colette Colman said the accountability and transparency concerns did not relate to the independent school sector.
"The vast majority of independent schools are stand-alone schools and receive their allocated government funding directly," she said.
- The Age, with AAP