The NAO said 532 million yuan has been recovered after the audit, with 28 officials punished.
China earmarked more than 140 billion yuan for poverty relief last year, with more than 30 percent coming from the central budget.
Embezzlement of poverty relief funds was found in the audit. Some 547 million yuan was misappropriated for other purposes such as urban and landscape construction. Some 947,300 yuan was embezzled by local officials.
National auditors found misuse of funds totaling 3.98 billion yuan (300 million U.S. dollars) in 145 poor counties last year after a three-month audit since January, down 1.6 percent from 2016.
The audit also showed that more than 1,000 poverty relief projects in 42 counties only made slow progress and some projects were a mere formality.
Idle funds still existed. Some 223 million yuan of funds designed to support agriculture in poor regions have been put aside for more than two years in 39 counties, and 670 million yuan of funds have remained unused for more than one year.
"We cannot just spend the money, we must pay attention to how the money was used, review the results, and closely track every link in the poverty relief," the official said.
There were lingering problems including ineffective policy implementation, weak fund management, and slow progress in anti-poverty projects, according to the National Audit Office (NAO).
Efforts should be focused on areas of abject poverty and special groups of poor people so that no village or individual will be left behind, according to a central meeting last month.
An anonymous NAO official said the idle funds also resulted in the fact that some poor people could not enjoy favorable policies in education and health care, and even saw their interests damaged.
Along with risk prevention and pollution control, poverty relief is one of the three major tasks for Chinese authorities in the coming years, and a tough battle that the country must win to build a moderately prosperous society in all respects.
BEIJING, July 3 (Xinhua) -- China has toughened its audit of poverty relief funds to ensure the effective use of hundreds of millions of dollars each year in its latest effort to deliver the promise of wiping out poverty by 2020.