After recording modest profits for two straight years, Selangor investment arm Kumpulan Darul Ehsan Bhd (KDEB) ended up RM122 million in the red in 2009.

According to the Auditor-General's Report 2010, the primary reason for this was the Pakatan Rakyat administration's free water programme, which was funded by KDEB at a cost of RM131.47 million.

"This is a rise in expenses that is not balanced when compared with the increase in revenue," the report says.

Despite making the massive losses, KDEB still saw it fit to pay RM576,563 in bonuses to its 30 staff, a move approved by the company's four-member board of directors comprising the menteri besar, company president, state secretary and state financial officer.

The board of directors was also taken to task for failing to abide by a 1993 Treasury circular that requires the board to meet at least four times a year to safeguard the company's finances.

"The audit found that the meetings didn't happen as frequently as they should. Two meetings were held in 2007 and 2009 respectively, and three in 2008.

"However, the KDEB board met four times in 2010 (which is not part of the scope of the audit)," says the report.

In conclusion, the report states that the administration of KDEB was not satisfactory, citing a lack of board meetings, inactive audit and checking mechanisms and unsatisfactory financial management.

"KDEB should follow all rules and circulars that are related to corporate administration," the report says.

MB's Office: State assets belong to the people

In an immediate reaction, the Menteri Besar's Office issued a statement denying that KDEB was suffering losses because of the free water programme.

"This is because funds for the programme are being channelled directly by the state government to KDEB for the payment (for the water subsidy)," says the unsigned statement.

The MB's Office did not address the other aspects raised in the report individually, but said that all operations were done transparently and in accordance with the regulations.

Instead, it said the auditor-general is not familiar with the state's policy and method in sharing the state's wealth with the people as part of its 'Merakyatkan Ekonomi Selangor' programme.

"This means that all assets or land owned by the state government are owned by the people of Selangor," the statement says.

Since the state government is holding all the state's assets and land in trust, all profits from state-owned companies are channelled directly to the people in a transparent and responsible manner.

Comparing the state's operations with Petroliam Nasional Bhd (Petronas), which reaps billions of ringgit every year, the Menteri Besar's Office said Petronas is less transparent.

"(Petronas) hands billions of ringgit in profits to the federal government, but we don't know how these profits are being spent on the people," the statement adds.

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