VEC took 9% loan for budget gap
Documents show a long-term facility was set up in 2008 at an effective interest rate of 9%. This was to bridge an anticipated gap of €200,000 in the construction of the €1m facility.
The €200,000 was to be repaid to Mallow Credit Union, which is represented on the board of Mallow Youthreach due to its close association with the project.
The repayments were to be made by extending a €21,585-a-year lease on the Youthreach property by 20 years. To facilitate the deal, CCVEC was to surrender the right to own the land outright in 2011.
The loan was not drawn down and CCVEC is prep-aring a report on the background to a series of leases it arranged for the site at Ballyellis, Mallow.
These were not brought to the attention of its sanctioning body, the Department of Education.
The Department of Education has already told the Public Accounts Committee it requires answers from CCVEC on this money, and that, whether intentionally or not, CCVEC gave it wrong information.
Although CCVEC recently sought retrospective approval for a newly signed lease, it never told the department of the agreement with Mallow Credit Union in 2008.
However, full details of this arrangement were passed on to Pobal to support CCVEC’s application for a €1m grant to build the new childcare centre.
The extra borrowing was deemed necessary in 2008 because the costs of the construction had risen by €200,000.
To bridge the potential funding gap, CCVEC told Pobal it secured €200,000 from the credit union.
To compensate for this, CCVEC signed a 20-year extension to its lease with the credit union, this was to be paid down at €21,585 a year. The total repayments, between 2011 and 2031 would have amounted to €431,000.
This was equivalent to a 9% interest rate over the lifetime of the loan. A business mortgage at 5% would have resulted in a €130,000 saving over the 20 years.
The documents show Mallow Credit Union bought the Ballyellis site on behalf of CCVEC for £130,000 in 1996.
It leased the site back to CCVEC for 15 years at an annual rate of £17,000 a year. This total repayment, £255,000, equates to an interest rate of 10.25%.
The Department of Education did not approve the 1996 lease, but it did give CCVEC retrospective approval for it in 1997.
The Pobal application shows that a year later CCVEC altered the lease again this was also done without Departmental permission.
The reason the lease was altered was because CCVEC accepted an additional £50,000 in funding from the credit union to fix a faulty roof.
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