A Melbourne independent school, Hester Hornbrook Academy, faces a federal demand to repay about $23 million in disability funding it allegedly over-claimed, marking the largest publicly disclosed case under Australia's crackdown on improper disability funding claims.

Disability payments are being scrutinized when students are nominated without medical diagnoses, with funds intended for disability-related adjustments; the department aims to save roughly $463 million over four years through tighter rules, including $40 million from the May budget for enhanced oversight.

Melbourne City Mission says the academy acted in good faith and followed NCCD guidelines, and is reviewing options to maintain student support while engaging with the department to resolve the dispute.

Hester Hornbrook’s principal and leadership dispute the department’s assessment and plan to challenge the draft determination, while acknowledging that stronger evidence scrutiny will likely curb funding in the future.

Education Department intends to reclaim about $22.9 million and signals broader accountability measures that could reduce the school’s funding in coming years as part of a nationwide effort to curb improper allocations.

Auditors found the school categorized more than 90% of its students in the highest disability support bracket, far above the national average of 2.8%, prompting renewed scrutiny of funding allocations.

Since its 2017 founding by Melbourne City Mission, the school has grown to over 700 students across five campuses, with Commonwealth disability funding making up about 82% of total income of just over $36 million in the most recent year.