A report from Papua New Guinea's Auditor General has found that the District Service Improvement Programme has been marred by misuse of funds and limited accountability.
The DSIP grants see MPs in each of PNG's 89 districts receiving ten million kina for spending in their electorate annually.
The report on DSIP in the previous financial year has been presented to parliament.
It concludes that among other things there has been ineffective spending of DSIP grants and likely instances of fraud and misappropriation.
It says these stem from "a pervasive breakdown in the DSIP governance framework".
The report is based on audits of 22 districts tracking the spending of DSIP funds totalling 207 million US dollars.
Among the key findings, was significant underspending on water supply and sanitation, law and justice, rural communication and electrification and health; and pressure from local MPs to ignore governance procedures to distribute funds to politically expedient projects.
The Auditor General recommends that substantial amendments are needed to the DSIP framework.