AusAID's director general Peter Baxter [pictured] says he is taking a "zero tolerance" approach to fraud and corruption among their officials in Papua New Guinea.
The two governments have signed an agreement to take a "zero tolerance" approach to impropriety.
Baxter said the agreement includes a commitment to investigate and prosecute perpetrators.
"Any fraud against development funding is in effect taking money from the least privileged members of Papua New Guinea's society," he said.
PNG's national planning minister Charles Abel says the agreement fits well with his government's own anti-corruption strategy.
This year, AusAID will spend nearly half-a-billion Australian dollars in PNG.