The founder of a flagship free school and two staff members fraudulently obtained around £150,000 from government grants, "treating public money as their own", a court has heard.
Sajid Hussain Raza, 43, Shabana Hussain, 40, and Daud Khan, 44, are charged with making payments into their own bank accounts from a Department for Education grant given to help set up the Kings Science Academy in Bradford in 2011.
Raza, the founder and principal of the school, used some of the money to make mortgage repayments on rental properties he owned "to alleviate his own financial problems", the trial at Leeds Crown Court heard.
The court heard that the fraudulent activity continued for three years, between November 2010 and December 2013, despite senior civil servants expressing concern about Raza's leadership and financial management.
Raza, from Bradford, is charged with four counts of fraud, three counts of false accounting and two counts of obtaining money transfer by deception.
Hussain, a teacher at the school and Raza's sister, is charged with one count of fraud and one count of obtaining property by deception.
Khan, the financial director at the school, is charged with two counts of fraud and three counts of false accounting.
All three defendants deny the charges.
Simon Kealey, prosecuting, said Raza made an application for a 500-place secondary school to open in September 2011.
Kings Science Academy was among the first wave of free schools which were part of a new flagship education policy introduced by the government after the 2010 general election, he said.
The proposal was approved and grants were given by the Department for Education to cover the costs incurred during the setting up of the school.
The court heard that Raza and Hussain made a series of payments into their own personal bank accounts from these grants.
Khan did not receive any payments but Mr Kealey said: "The offences could not have happened without Daud Khan's dishonesty and participation."
The jury heard that Raza and Khan are also accused of false accounting by submitting inflated or fabricated invoices for rent, fees for heads of department and recruitment services.
'Dishonestly diverted public money'
Mr Kealey said: "During the course of the set-up and running of the school, the prosecution allege that the defendants committed fraud. They dishonestly diverted public money intended for the school and they created a series of false documents intended to cover their tracks."
He continued: "In summary, the prosecution allege that these defendants treated public money as their own, paying themselves what they wanted, whether they were entitled to it or not. And when challenged to provide proof of expenditure, created or fabricated documents in order to cover their tracks.
"The total amount of public money which was paid when not entitled was approximately in the region of £150,000."
Raza is also accused of making false claims about his income and job on mortgage application forms in 2004 and 2008.
Mr Kealey told the court that Raza began having financial problems during this time.
He owned rental properties, which were making a loss, and he began missing direct debit and mortgage payments due to having insufficient funds in his bank accounts, the jury heard.
A number of county court judgements were entered against him, which he did not disclose to the Department for Education, and he was unable to become a signatory to the school's bank account, the court was told.
Mr Kealey said Raza opened a bank account in 2010 which had a balance of £28,000 in July 2011, after it was used to receive three large credits from the Kings Science Academy.
The prosecutor said almost half of that balance was used, in the same month, to make large mortgage repayments.
He told the jury: "This provides a strong link between the fraudulent activity at the Kings Science Academy and his own financial problems.
"The prosecution invite you to infer that the other fraudulently acquired credit on his accounts were used in a similar way to alleviate his own financial problems."
Mr Kealey said a number of meetings took place between Raza and the Department for Education, at which he was said to be "incredibly rude and dismissive", appeared to "pluck financial figures out of the air" and threatened to call the then education secretary Michael Gove when challenged.
The prosecutor said: "Although some expressed concern, the process nevertheless continued."
When interviewed by police, Raza initially denied responsibility and accused Khan of "reckless accounting". He later made no comment after his arrest.
Khan, from Thornbury, Bradford, told police he was not responsible and blamed Raza. He said Raza had told him he was the boss and he thought he would lose his job if he challenged him.
Hussain, from Bradford, gave a no comment in interview.
The case continues.