The Ombudsman Commission in Papua New Guinea says before this year's election more than 2 million US dollars of public money was illegally paid out to some MPs who failed to hold their seats.
The money is part of the rural development or district support money paid out to each MP.
The Chief Ombudsman, Ila Geno, says before the election the Commission issued a directive that the money not be paid out because in previous years the money ended up as election funding.
Mr Geno says the MPs should not have claimed anything after the elections writs were issued but some claimed a full year's allocation.
"It is the money which is to cover all of 2002 so if any of the former members had access to the all of the amount for 2002 by now would be in the wrong hands. So someone is unlawful in possession of that money."