The National Audit Office (CNAO) has found that 272 million yuan ($34.8 million) of the funds allocated to the resettlement of residents displaced by the Three Gorges Project in 2004 and 2005 was misappropriated by local authorities.

The money was used to open local government-run businesses, pay off the debts of other local departments, pay staff salaries in administrative departments, build more office buildings and houses for people outside the resettlement project and to pay off bank loans, according to the CNAO.

The central government allocated 9.6 billion yuan ($1.2billion) in resettlement funds in 2004 and 2005.

Five major cases involving misuse of funds have been passed over to judicial and disciplinary departments and some local officials are expected to be punished, but the CNAO did not provide further details.

CNAO audited the use of the resettlement funds in 10 counties and districts of Hubei Province and Chongqing Municipality in 2006.

Given the auditing process only covered certain regions and does not take into account the use of the resettlement money in 2006, the actual total of misappropriated funds could be even higher.