Approved providers of residential aged care are required to comply with prudential responsibilities that are set out in the Aged Care Act 1997 (the Aged Care Act) and the Fees and Payments Principles 2014 (No.2) (the Principles).
- responsibilities of approved providers (section 56-1 of the Aged Care Act)
- managing refundable deposits, accommodation bonds and entry contributions (Part 3A.3 of the Aged Care Act and Parts 6 and 7 of the Principles)
- the Prudential Standards (Part 3A.3 of the Aged Care Act and Part 5 of the Principles).
Approved provider responsibilities
The Commission seeks to ensure that all approved providers that hold refundable accommodation payments are meeting the regulatory requirements of the Prudential Standards.
There are 4 Prudential Standards (the Standards) requirements, which are detailed below.
An approved provider must develop, implement and maintain a liquidity management strategy (LMS) in the format specified in the strategy including the minimum level of liquidity.
Refundable deposit or bond balance
The Liquidity Standard, section 43-44 of the Principles, states that any provider holding at least one refundable deposit or bond balance (including entry contributions) during the financial year must:
- maintain sufficient liquidity to ensure they can repay refundable deposit and bond balances (including entry contributions) that may be due in the following 12 months
- implement and maintain a written LMS that identifies:
- the minimum level of liquidity (expressed as an amount in whole dollars) that is required so a provider has adequate liquidity to repay bond balances and refundable deposits, including entry contributions, when they are due
- the factors the provider has considered in determining the minimum level of liquidity
- the format in which the provider will maintain the minimum level of liquidity.
The common forms of evidence that are required from an approved provider to confirm they can maintain minimum liquidity are an LMS, bank statements or lines of credit balances.
An approved provider must establish and maintain a refundable deposit register that includes information about refundable deposit balances, accommodation bond balances and entry contribution balances.
The Records Standard, section 45-48 of the Principles, requires the approved provider to maintain accurate, comprehensive and up-to-date information on refundable accommodation deposits (RADs), bond holdings (if any) and entry contributions.
Refundable deposit register
Under the Records Standard, all providers holding RADs, bond holdings and entry contributions must establish and maintain a refundable deposit register (RAD register).
- may be maintained at either the service level or at provider level (noting though, that when completing the Annual Prudential Compliance Statement RADs are recorded at the provider level)
- can be either in hard copy or electronic format
- must include relevant details on payments made such as lump sum, part lump sum, daily accommodation payments or periodic payments
- must include the resident ID number, resident name, RAD or bond details, the date the resident entered the service (or the date the resident transferred from another service) and date the payments were made (inclusive of any instalments).
The common forms of evidence required to assess compliance are RAD register entries for individual care recipients and RAD refunds.
An approved provider that holds refundable deposit balances or accommodation bond balances must implement and maintain a governance system that ensures the balances are only used for permitted uses and can be refunded as and when they fall due.
The Governance Standard, section 49-50 of the Principles, requires approved providers to develop sound governance systems to ensure RADs and bonds (if any) are only used for permitted uses and are refunded to residents as and when they fall due, as required under the Aged Care Act.
An approved provider that holds refundable deposit balances or accommodation bond balances must implement and maintain an effective governance system that ensures the balances are only accessed for permitted uses and can be refunded to residents when they are due.
The Governance Standard promotes sound business practices by requiring providers to develop and implement governance arrangements in accordance with the size and complexity of their business.
These requirements are outlined in the Governance Standard, section 49-50 of the Principles.
Investment management strategy
Approved providers are required to maintain a written investment management strategy (IMS) if they invest RADs or bonds in financial products. This is outlined in S52N-1(3)(b) of the Aged Care Act and s.63(c) of the Fees and Payments Principles.
The Governance Standard only applies to the management of RADs and bonds not corporate governance within a providers’ commercial business arrangements.
The common forms of evidence required to assess compliance with the Governance Standard are:
- governance policies and procedures in relation to managing and controlling RADs
- job descriptions
- training documentation in relation to RADs responsibilities
- RADs refund policies and procedures
- financial delegations in relation to RADs refunds
- loan documents to related parties
- evidence of capital expenditure
- evidence of investments.
An approved provider must deliver regular updates and information to the Secretary of the Department of Health, residents, prospective residents and their representatives, about their compliance with the Liquidity, Governance, Records and Disclosure Standards.
It includes information on their compliance with the Prudential Standards, the total of the refundable deposits they hold, their use of refundable deposits, an independent audit report and details of their financial position.
A provider must submit this information to the Department within four months of the end of the financial year which, for most providers, will be by 31 October.
Providing information to the Department of Health
The Disclosure Standard, section 51-58 of the Principles, requires providers holding refundable deposits and bonds (including entry contributions) to deliver regular updates and information to the Secretary of the Department of Health, residents, prospective residents and their representative about their compliance with the Liquidity, Governance, Records and Disclosure Standards.
It should incorporate information on their financial position including:
- consumers who have paid a refundable deposit or prospective consumers– including information about the refundable deposits, refundable deposit balances, accommodation bonds, accommodation bond balances, entry contributions and entry contribution balances held during the financial year
- details of (non-residential) fees paid by residents through My Aged Care and via their website (if applicable)
- Secretary of the Department of Health statements and other information required as part of their Annual Prudential Compliance Statement (APCS) within four months of the end of the financial year (for most providers, before 31 October)
- consumers who have paid a refundable deposit – including the annual disclosure of the resident’s entry in the RAD register within four months of the end of the financial year (for most providers, before 31 October)
- consumers who have signed an accommodation agreement – a summary of the permitted uses of RADs and details of the approved provider’s prudential compliance including non-compliance with repaying refundable deposits. It should also capture details of any investment objectives if refundable deposits are used for investment within seven days of signing the accommodation agreement or within seven days of a request by the consumer.
Breaches of the Disclosure Standard
The APCS is part of the Disclosure Standard which means any late submissions of any part of the APCS is a technical breach and should be reported in the following year’s APCS.
Similarly, letters to care recipients or their representatives sent after 31 October each year must be reported as a breach.
The common forms of evidence required to assess compliance with the Disclosure Standard are:
- the APCS
- letters sent to care recipients within four months of the end of the financial year (for most providers, before 31 October)
- accommodation agreements
- information on the approved provider’s website.
Annual Prudential Compliance Statement
Approved providers must submit an Annual Prudential Compliance Statement (APCS) to the Commission about their prudential responsibility compliance.
If an approved provider is aware they have breached the requirements against the Prudential Standards, they must declare the breach in their APCS submission during the reporting period.
They must state they:
- did not comply with the relevant Prudential Standard
- what actions they took to fix the non-compliance
- ensure the breach does not occur in future.
Targeted Campaigns and Prudential Reviews
The Commission will also engage with approved providers through Targeted Campaigns and Prudential Reviews.
Targeted Campaigns aim to educate the sector on a specific prudential requirement, while the Commission carries out Prudential Reviews with specific providers to review and improve their understanding of the Prudential Standards.
Compliance and enforcement activity is conducted in line with the Commission’s Compliance and Enforcement Policy.
Targeted campaign – national compliance report
Between November and December 2020 the Commission audited a random sample of approved providers across Australia to assess their understanding of refunding obligations, liquidity management systems and the Liquidity Standard requirements.
This enabled the Commission to identify areas of concern and deliver targeted education and support for providers to help them improve compliance rates.