Guests at an upmarket Beijing villa hotel have been hosted by a mammoth fraud perpetrated by staff at the Beijing Railway Bureau, China's National Audit Office (NAO) has revealed.

The Beijing Xishan Cuiyuan Mountain Villa in the city's rural Shijingshan district began life as an internal guest-house for bureau staff before undergoing a massive 164-million-yuan (US$20.5 million) conversion to a commercial hotel.

However, the NAO has revealed in a report on its 2005 annual audit that the money was actually misappropriated from the Beijing Railway Bureau coffers.

The villa's website says the hotel employs 180 staff and is owned by the Beijing Xishan Cuiyuan Mountain Villa Corporation Ltd., with a registered capital of 100 million yuan (US$12.5 million).

Nobody at the company was available to comment on Tuesday.

The report said that from 2000 to 2004, the Beijing Railway Bureau, without approval from the State Development and Reform Commission and Ministry of Finance, misused more than 60 million yuan of renovation funds and 98.29 million yuan of public welfare funds for remodeling the hotel.

The Ministry of Railways said it was investigating and dealing with the case of budget misuse.

The villa is highlighted as the worst use of budget funds in the NAO report on 42 government departments. Auditors revealed examples of unauthorized spending of cash surpluses, falsification of expense claims for receiving foreign guests, unreported sales of assets, and the embezzlement of special and scientific research funds.

(Xinhua News Agency September 12, 2006)