Prudential audit insights report

Introduction

We do prudential audits to check a provider’s financial and prudential practices and make sure they understand their prudential responsibilities. These include policies and practices related to refundable deposits, and their compliance with the Financial and Prudential Standards.

These are set out in the Aged Care Act 1997 (Act) and Fees and Payments Principles 2014 (No.2) (Principles).

Note: The new Aged Care Act will commence from 1 November 2025. As part of this reform new Financial and Prudential Standards will take effect. We have published the final exposure draft of the new Aged Care Financial and Prudential Standards. The new Financial and Prudential Standards will replace the 4 current Financial and Prudential Standards (Liquidity, Governance, Records and Disclosure) with 3 updated, focused Financial and Prudential Standards:

Financial and Prudential Management Standard
Liquidity Standard
Investment Standard

The existing Financial and Prudential Standards will remain in effect until then.

Background

In the past, we’ve done prudential audits on small providers in rural, regional and remote areas. In 2024 and this year, we focused on medium-sized providers that run 3 to 10 residential care services. These providers have more complicated business structures and related party transactions. They hold larger refundable deposits and have more demands on their cash flows.

We reviewed 97 providers to check if they were complying with:

the Liquidity Standard
the Records Standard
the Governance Standard
the Disclosure Standard
permitted uses of refundable deposits
refunding of refundable deposits
publishing room prices.

We audited these providers to check if:

they understood how to manage refundable deposits
they had systems and processes to manage refundable deposits
there were any gaps or non-compliance
they need more support and information to help them understand their obligations.

Our findings

Most providers complied with their prudential responsibilities and worked with us to address gaps or non-compliance in a timely manner. We were also pleased to see, particularly in the last quarter of the financial year 2024-25, that many providers were putting strategies and tactics in place to prepare for the new Aged Care Act and the new Financial and Prudential Standards.

Liquidity Standard

Almost all providers complied with this standard. They had:

enough liquid assets to refund deposits
systems to keep track of their liquidity.

A few providers didn’t comply because their liquidity management strategy specified their minimum liquidity level as a percentage, rather than a whole dollar amount.

Records Standard

Most providers had good record-keeping practices and financial management systems for refundable deposits.

We found some providers were:

not using the resident identification number correctly
missing monthly balances in the refundable deposit register or the extract of the register
not clear on the differences between the refund due date and refund date
making data entry errors, resulting in incorrect refund calculations.

Governance Standard

Most providers had a strong governance system to manage refundable deposits. This included:

clear roles and responsibilities for staff or key personnel managing refundable deposits
financial control and reporting systems to make sure they only use refundable deposits for permitted

We did find a few common gaps across providers, such as:

processes to ensure that key personnel are aware of their responsibilities related to refundable deposits were undocumented
lack of clear processes to identify, record and respond to non-compliance
references to out-of-date legislation, such as User Rights Principles.

Disclosure Standard

Most providers complied with this standard. They:

lodged their Annual Prudential Compliance Statement (APCS) within 4 months of the end of their financial year
declared any non-compliance that their external auditor or the Commission identified.

However, we found that some providers:

were using outdated or incomplete templates and letters for their disclosures (these were made by external legal or advisory firms)
didn’t know that they must send an annual disclosure letter with an entry from their refundable deposit register to the people who paid a refundable deposit within 4 months of the end of their financial year.

Permitted uses

Providers, particularly those that operate for profit, often use refundable deposits and their operating revenue to make improvements to their aged care facilities. This helps them improve the quality of care and be competitive.

Many providers used refundable deposits for financial investments and to pay back loans. They did this by getting advice from external specialists and using an investment management strategy.

However, our audit found that some providers didn’t understand that some of their expenses weren’t permitted uses, even if they were for providing aged care services. For example, providers aren’t permitted to use refundable deposits to:

buy vehicles to transport residents to social events or care activities
do routine repairs, replace kitchen appliances, or repaint rooms
pay back debts for general purposes, such as wages, superannuation and operating costs.

Refunding refundable deposits

Most providers complied with their refunding obligations. They had strong internal processes, software support and good record-keeping practices.

We found a few areas of non-compliance, such as late refund payments and incorrect interest calculations. This mainly happened when providers didn’t understand the legislation.

Publishing and charging accommodation payments

We did not identify any instances of the overcharging of accommodation payments above the maximum price without approval from the Independent Health and Aged Care Pricing Authority (IHACPA).

Providers also published their room prices on the My Aged Care website.

However, some providers didn’t publish:

the required information about their rooms and prices on My Aged Care
the required information in their written material they provide to older people
consistent information for each room type and price on My Aged Care, provider website and written materials.

Things to consider