National Auditors Allege RMB9.37B Fraud and Abuse in Public Housing

China recently set aside RMB 119.3 billion ($19.2 billion) to provide affordable housing for its middle-class, but the program seems to first be creating opportunities for massive fraud and abuse of funds.

The country’s National Audit Office issued a statement on Friday indicating that a nationwide inspection of affordable housing project funding indicated that local governments had diverted RMB 7.83 billion ($1.27 billion) of the central government funds for other purposes last year.

The audit, which was conducted from December to March, discovered that during 2013 the misused funds had been spent on commercial housing development, infrastructure projects and construction of industrial parks.

In addition to the redirected funds, the audit uncovered RMB 1.54 billion in fraud committed by 38 organisations or individuals specifically related to government programs designed to redevelop shanty towns.

Many buyers of affordable housing also benefitted from the fraud, with more than 47,500 ineligible households found to have purchased the government-subsidised properties, due to poor enforcement of standards by local governments.

Abuse of Funds Grew By Nearly 40 Percent in 2013

The abuse of the subsidised housing program detected by the Audit Office represented a 39 percent increase over what was found during a similar audit last year.

In a 2013 report, the Audit Office reported that in the approximately RMB 880 billion China spent on on affordable housing during 2012, about RMB 5.8 billion of these funds were misappropriated.

As part of its statement on Friday, the Audit Office indicated that it has told related authorities to rectify wrongdoing, and police have started to probe alleged crimes. However, the office is not believed to have any powers to bring charges against local governments or individuals directly.

In addition to providing affordable housing for middle-class families, and attempting to reduce public unhappiness over sky-rocketing home prices, the government has turned to increased spending on the program this year to prop up economic activity as commercially funded real estate development has slowed down.