High-level Defense Ministry officials and corporate executives are suspected of involvement, RIA Novosti reported Friday.
About $333,000 has already been returned to the treasury as a result of audits of 16 contracts between the Defense Ministry and commercial businesses, the Prosecutor General's Office said.
Investigators found a private company, PromSpetsStroi, only partially fulfilled a $330,000 contract with the Strategic Missile Forces and failed to meet quality standards. However, the company received full payment from the Defense Ministry and missile division.
A PromSpetsStroi director also received a $50,000 kickback from a subcontractor, investigators alleged.
The investigation is part of a wider fraud inquiry involving at least $130 million at Oboronservis, the ministry's property management firm.
The investigation has so far led to the sacking of Defense Minister Anatoly Serdyukov. The former head of the ministry's property department and two former Oboronservis executives were arrested last year.
Senior Defense Ministry official Nikolai Ryabykh was arrested Jan. 15.