Government auditors reportedly have found massive fraud involving two of China banks, and dozens of cases are being referred to prosecutors. There could be more scandals uncovered as China cleans up its troubled banking sector.

Government auditors have found $238 million in fraudulent loans and misused funds at two banks.

A report on China's official Xinhua news agency says government auditors told a legislative committee that China Construction Bank employees colluded with outsiders to make fraudulent loans totaling $120 million.

Another case involved a high-ranking police official who is accused of using false identification to take out millions of dollars in mortgages.

Xinhua also says another bank was accused of lending $110 million to a company that used the cash to play the stock market. Xinhua says most of the money is now missing.

Connie Wang is a financial analyst with the rating agency Standard and Poor's in Hong Kong. She says efforts to clean up China's troubled banking sector are likely to reveal more such problems in the future.

"To improve the system of course you want to increase the transparency and we're trying to correct many things in the past that were not discovered in the system," she said.

This is just the latest in a series of cases of improper lending by state banks. The most prominent recent example is the investigation into whether companies linked to a Shanghai real estate tycoon illegally used bank loans to speculate in the stock market.

The problems are coming to light as Chinese authorities are trying to get the banks to reform their lending procedures. The country's banks are burdened with hundreds of billions of dollars in loans that are not likely to be repaid.

For years, lending has been based on political connections and government economic plans, not on the ability to pay back a loan on time. Many economists and financial analysts say the bad loan problem could seriously hurt China economy.