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Financial and Prudential Regulatory Insights – August 2023

Peter Edwards, Executive Director, Financial and Prudential Regulation

Earlier this month the Commission held a webinar on Financial and Prudential Regulation. Its purpose was to explain both how the Commission uses financial and prudential insights, along with other sources of intelligence, to understand aged care provider risk and the way in which our varied functions work to manage these risks. If you missed the webinar, you can watch it here.

It was great to see so many people attend the webinar. I am hoping that this is due to a growing appreciation that good money management and strong governance is key to the delivery of high-quality care and investment planning translating into outcomes that support continuous improvement. 

Interestingly, we received several questions highlighting that there is still some confusion about the different roles the Commission and the Department of Health and Aged Care (the Department) play in relation to financial matters. I thought I would use this month’s post to explain how our different yet complementary roles support better outcomes for older Australians.

As many reading this post will know, it is mandatory for aged care providers to report financial information, with other compliance and performance information, to the Department on a quarterly and annual basis. The annual requirement has existed for many years, with the quarterly obligation commencing late last year. The introduction of quarterly financial reporting followed the Royal Commission into Aged Care Quality and Safety, recognising that ‘Access to the right financial and corporate information of providers, the timeliness of that information and the ability to analyse that information is critical to good prudential regulation and financial oversight.'1

This led the Government to introduce quarterly financial reporting (QFR) to ensure the Department as the System Governor and the Commission as the Prudential Regulator have visibility of sector and provider level risks. The Department administers the processes through which providers submit their information and uses it to undertake sector wide analysis. If you are interested in that analysis, you can access the Quarterly Financial Snapshot here - the latest available snapshot is for quarter 2 of the 2022-23 financial year. The quarter 3 report is expected to be published at the end of August. The Department also uses QFR information to monitor the delivery of care minutes that feed into Star Ratings. The Commission is responsible for the regulation of providers to ensure they meet their mandatory reporting obligations. 

The provider level information is then shared with the Commission which we use, along with all other information we receive and retain about individual providers, to assess provider level risk. That assists the Commission in our provider financial viability monitoring function, which transferred to the Commission from the Department on 1 July of this year. We use that analysis to proactively reach out to providers to better understand their situation. Through this we aim to prevent emerging risks becoming issues that have the potential to impact older Australians receiving care. At times that may lead us to consult with the Department where we consider a provider may potentially benefit from being invited to apply for some form of program support. 

Based on some of the questions we received from the webinar there is confusion about whether funding decisions also transferred to the Commission with the provider financial viability monitoring function. The answer is no. The Department retains responsibility for program support decisions, while the Commission is focused on early identification of provider level financial viability risk. Through this the Commission aims to work with providers to strengthen their financial management and governance capabilities to better manage financial risks themselves. Both the Commission and the Department recognise that at times other types of support will be required to assist some providers that are heading towards financial trouble. That’s why the Commission works closely with the Department where it is evident program support might be needed. 

I’ll finish with something else that might be causing some confusion around the Commission’s role in managing non-compliance with mandatory financial and prudential compliance reporting obligations. Although reports must be submitted to the Department, the Commission supports the Department by following up with providers that submit late or refuse to submit required reports. As outlined in an earlier post, it’s our preference to initially take an informal approach to encourage compliance through use of reminders and cautions.  In the majority cases that achieves the desired outcome. That said, at times we have needed to resort to the use of formal enforcement powers where all other methods have failed to solicit the required response. 

Pleasingly, quarter on quarter we have seen a steady decline in needing to use our formal powers, which is a credit to the sector. A high level of compliance with reporting helps everybody, by providing the transparency needed to both assist sector wide planning and management of provider level risk. 

Until next time… 

[1] Royal Commission into Aged Care Quality and Safety, Final Report: Care, Dignity and Respect, Volume 3B, page 751.


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