Vector Victor, I hope you pass on the details of this school to either SRG or somebody here what is occuring is totally illegal and potentially lethal.
As for the instruction in aeros, as long as the FI is just demonstrating manouevers, then it is perfectly acceptable as long as they are competent, but if they are actually teaching, then I would argue that this is not acceptable. This does then get into the AOC issue.
M_J is correct in that a lot of clubs allow competent club members to conduct certain checks on other PPL's, but they cannot log it or get paid for it obviously. It is also done very regularily in private owner groups.