The founder of a public charter school in the East Bay that provides a comfort zone for Muslim students is under attack in the wake of a state audit that uncovered questionable financial practices, including lavish payments to her.

In 2007, compensation for the founder and director of the FAME school in Fremont, Maram Alaiwat, was more than $240,000. This was roughly the same as the total compensation of the Fremont Unified Schools superintendent, who oversees 38 schools.

Ms. Alaiwat's compensation package included a base salary of $153,702, a $32,500 housing allowance and a mileage stipend of $7,000. She was also given 10 percent of federal grant money that the school received for books and other needs, a stipend worth $30,000. She was paid $18,700 in lieu of vacation, and was provided with the money to buy a $74,820 2007 Mercedes GL 450.

According to the audit, the five-year-old charter school, Families of Alameda for Multi-Cultural/Multi-Lingual Education, had also taken out more than $3 million in loans from private lenders including Ms. Alaiwat's two brothers and two school board members, at an interest rate significantly higher than commercial lenders charge. In most cases, the private lenders also received a 10 percent fee.

In addition to the compensation and the loans, Ms. Alaiwat rented her new condominium to an employee, whose salary she subsequently increased.

These financial issues and concerns about lagging test scores are expected to be raised Tuesday by officials of the Fremont schools at an Alameda County Board of Education meeting. Last month the board voted, 5 to 2, to give provisional approval for FAME's operations to continue. By March, the school must show it has complied with the auditors' recommendations before it can receive final approval.

In her own defense, Ms. Alaiwat said she was "one of the least-paid directors in the state" given the number of students and the size of the area FAME draws from. When she started the school, she said, she agreed to work for $88,000, "a lowered salary because it was my baby."

"Money was not the motivation," she said. "You make a lot of sacrifices."

The school has received favorable attention for the welcome and resources it extends to Muslim families in this multiethnic region. On one of the FAME campuses, a converted J.C. Penney's call center, no one stares when three slender girls slip away at lunch to kneel in a corner and pray. Arabic is taught in all grades, and many girls wear hijabs.

FAME is "a second home to many inner-city Muslim families," Ms. Alaiwat said in an e-mail message. She added, "The wall separating church and state in public schools was barb wired on the Muslim side, making it impossible to have equal access to public services and making it emotionally 'unsafe' for many Muslim children."

But scores on standardized state tests lag well below the average of the Fremont public school system in almost all subjects -- a fact Ms. Alaiwat ascribed to the number of students who come from low-income families.

In recent interviews, Ms. Alaiwat blamed the efforts to shut FAME on Fremont Unified school officials, whom she called "old white men." She said they had not come to terms with changes in Fremont, which is one of the most ethnically diverse cities in the region.

"I personally believe they are racists," she said. "I hate to pull the race and ethnicity card, but it's so blatantly that. The fact we exist is haunting them."

Larry Sweeney, a member of the Fremont Unified School Board, responded, "What a shameful, untruthful thing for an educational leader to say."

FAME's students would be better served in the public system, Mr. Sweeney said.

Dr. Milt Werner, superintendent of Fremont Unified School District, said his district provided "shining examples" of award-winning schools with mostly minority populations that were "closing the achievement gap."

The FAME school has grown rapidly, as have the state payments provided in part on the basis of enrollment. The school has 1,490 students, coming from as far away as Richmond. Half are home-schooled. Ms. Alaiwat received bonuses for increasing enrollment and maintaining the financial stability of the school. Fast-growing charter schools often have financial gaps since their state revenue is based on the previous year's enrollment.

In April 2009 the state's "exceptional audit" of FAME Public Charter School made 42 recommendations. Jeff Stark, the Alameda County senior deputy district attorney, said he was "conducting a review of the audit and the underlying issues."

Robert Chisholm, the president of FAME's board, defended the payments to Ms. Alaiwat.

"They are not excessive for what she's done," Dr. Chisholm said, adding that the board gave her $75,000 for a car because "we thought she deserved it."

The board also agreed to pay $958 in reimbursement for a speeding ticket. In its response to the auditors, the board agreed to stop paying such citations with school funds.

Jacki Fox Ruby, president of the Alameda County Board of Education, which granted FAME its charter, called Ms. Alaiwat's compensation "outrageous."

"What I don't get is," Ms. Ruby added, "if the teachers teach and the principals manage resources, what does the director do?"

The "extraordinary audit" issued in April was only the third requested by Superintendent Sheila Jordan in 10 years. A follow-up audit last fall indicated that more than half the 42 recommendations in the first audit had been carried out, and that progress was being made on the rest. One recommendation, asking that corrected W-2 forms for Ms. Alaiwat be filed, had not been resolved as of a follow-up audit in the fall.

Ms. Alaiwat, however, appeared confident when discussing the audit.

"Not a penny was legally mismanaged," she said. "The audit did not result or yield any financial loss to taxpayers."

The recommendations, she added, "are subjective best practices. Not the law. No criminal activity was found."

Lara York, the president of the Fremont Unified School District's board, said, "As a citizen, I have deep concerns over the amount of compensation the board is giving and the fact that they have not been elected."

Ms. Alaiwat said these problems began after someone sent an anonymous complaint to the Alameda County superintendent of schools saying that she "was funneling money to terrorism."

Not so, said Ms. Jordan, the superintendent, adding, "I never received an anonymous letter." Complaints, she said, came from concerned citizens who wanted the school to continue.

In June 2008, Ms. Jordan requested that the state's Fiscal Crisis and Management Assistance Team investigate possibilities of fraud and misappropriation of money at FAME. That audit showed a new charter school that was scraping by from loan to loan as its population grew.

FAME's response dismissed many of the auditors' concerns, including those about Ms. Alaiwat's renting an apartment to an employee. It said that she has a history of helping the homeless, the abused and orphans and was being charitable.

It also said that charter school officials were not obligated to abide by state conflict-of-interest laws cited in the audit.

FAME's board now consolidates all of Ms. Alaiwat's compensation into one lump sum.

In 2008, she received total compensation of $336,663. This year, her total pay will come to $240,000, Ms. Alaiwat said.

First Published: February 7, 2010, 7:00 a.m.