Introduction
We do prudential reviews to check providers’ financial and prudential practices and make sure they understand their prudential responsibilities. This includes checking if providers’ refundable deposits policies and practices comply with the Financial and Prudential Standards.
During the 2025–26 financial year, we reviewed 35 residential aged care providers to find out if they understood and complied with:
- the Aged Care Financial and Prudential Standards 2025 (Financial and Prudential Standards)
- their prudential obligations under the Aged Care Act 2024 (Aged Care Act) and the Aged Care Rules 2025 (Aged Care Rules).
Our findings
We found the most common areas of non-compliance were weaknesses in:
- maintaining governance documents
- applying the prudential requirements.
Only 3 providers were fully compliant. Of the 32 non-compliant providers, we referred 2 to our compliance team. With guidance and education from us, the remaining 30 providers achieved compliance by the end of the review.
Financial and Prudential Management Standard
We found medium-sized providers (with 3 to 10 services) had strong financial governance and supporting documents.
Small providers (with 1 to 2 services) in rural, regional and remote areas could explain how their financial governance management systems worked, but didn’t have all the required details in their documents. This was mainly due to staffing and other operational challenges.
The Financial and Prudential Management systems of non-compliant providers didn’t:
- document the roles and responsibilities for managing finances and refundable deposits
- document the process to recognise, record and respond to non-compliance in the system
- clearly state that staff managing finances knew about their regulatory obligations
- align with the new Financial and Prudential Management Standard. Documents still had details of the Aged Care Act 1997, Fees and Payments Principles 2014, and the old Governance Standard
- include review policies that were in line with the new Financial and Prudential Management Standard.
Things for you to consider
- Create and document a process for recognising, recording and responding to non-compliance. If your organisation has a complex structure, you should make this part of your risk management framework.
- Create a strong, regular financial reporting process to make sure your board is aware of issues with your financial performance and management of refundable deposits. Instead of using the Aged Care Financial Report (ACFR) as your only process for financial reporting, you should have your own processes too.
- Check and improve your financial and prudential management system review policies to prepare for new financial risks. Do this as well as your regular annual reviews.
- Make sure your financial governance is clearly connected to the safety, health, wellbeing and quality of life of older people.
Liquidity Standard
We found that providers had difficulty meeting the requirements of the Liquidity Standard because they didn’t understand them. One of the key requirements is having a written Liquidity Management Strategy (LMS).
The LMSs of the non-compliant providers didn’t include:
- both the default minimum liquidity amount (MLA) and the evaluated MLA for each quarter
- the method or factors for calculating the evaluated MLA
- governance components such as:
- the roles and responsibilities of the people who implement the LMS
- financial forecasting, liquidity monitoring and contingency planning to deal with unexpected financial shocks
- liquidity risk management, escalation arrangements and procedures to follow if a provider falls below the default MLA.
To meet the Liquidity Standard requirements, providers must calculate both their default and their evaluated MLA each quarter and decide which one to maintain. However, we found that many providers incorrectly thought they didn’t need to calculate an evaluated MLA each quarter if they chose to maintain the default MLA. This mistake was often common in providers who weren’t expecting big capital works in the coming years, so had decided to manage their cash and assets conservatively.
Based on our findings, we decided that education, rather than regulatory action, was the right way to achieve compliance.
Things for you to consider
- Calculate and state your default and evaluated MLA in your LMS in the first 35 to 45 days of each quarter.
- Update your LMS in line with section 16 of the Financial and Prudential Standards, particularly in the area of governance.
- Make sure you notify the Commission if you’re:
- electing to maintain an evaluated MLA
- revoking an election to maintain an evaluated MLA
- re-determining an evaluated MLA.
Investment Standard
At the time of our review, most providers:
- were compliant with the Investment Standard
- had no investment or liquidity risks
- had a written Investment Management Strategy (IMS).
Providers who were non-compliant didn’t:
- have well-documented investment objectives
- include strategies in their IMS to manage and reduce risk
- have enough evidence of their process for monitoring how their investments were performing
- have a documented process to recognise, record and respond to non-compliance in the IMS or the Investment Standard.
Good practice included incorporating the IMS document as part of the broader financial management documentation.
Refundable deposits
Refundable deposits register
In line with section 150A of the Aged Care Rules, most providers were able to:
- show that they maintain a refundable deposits register
- give the required information.
However, we noted compliance risks in related prudential obligations, such as refunding refundable deposits. This happened due to a software defect and quality assurance gaps rather than deliberate non-compliance.
You can find more information about this in the ‘Refunding obligations’ section.
Refunding obligations
Most providers were compliant with their refundable deposit refunding obligations. However, in some cases, the system was calculating incorrect interest amounts when it was time to refund the refundable deposits. This happened due to a software defect.
This led to the provider overcharging past residents. After the review, all providers:
- refunded the required amounts right away
- reviewed how they managed their refundable deposits, refunding policy and documents
- started a quality assurance process to make sure they manually check all refunds.
Refundable deposits disclosure requirements
Under section 155-30 of the Aged Care Rules, the refundable deposits disclosure requirements replace the old Disclosure Standard. We found providers needed ongoing education in this area. We commonly found that non-compliant providers:
- used outdated annual disclosure letter templates
- didn’t include the required legislative references in their disclosure documents
- didn’t publish their General Purpose Financial Statements (GPFS) on their website
- didn’t provide the written notifications they were required to under the accommodation deposit provisions
- delayed issuing annual disclosure statements.
Refundable deposit permitted uses
All providers except one complied with the ‘permitted uses of refundable deposits’ requirements. The non-compliant provider didn’t make the related party loan on a commercial basis. Most providers used their refundable deposits for:
- refunding refundable deposits
- investing in financial products, mainly term deposits, in line with their IMS.
Only a few providers used refundable deposits for capital expenditure. All providers were able to show evidence that these expenses were in line with the Aged Care Rules, and explain why.
Things for you to consider
- Review your disclosure letter templates to make sure they meet the requirements of section 155-30(2) of the Aged Care Rules.
- Make sure you’re referring to the new Aged Care Act and Aged Care Rules in your disclosure documents.
- Make sure you publish your GPFS on your website, in line with section 166-345 of the Aged Care Rules.
- Review your policies and procedures to make sure responsible persons know when they must give information to your residents.
- When making loans by using refundable deposits, make sure your loan agreement includes:
- interest rate
- repayment requirement
- a loan term
- security for loan.
What providers said
Many providers gave us positive feedback about:
- the education and guidance we gave them during the review
- how clear and easy to understand the documentation checklists and requests for information were
- our collaborative approach to the review, which improved their understanding of financial and prudential obligations.
‘This was the most supportive engagement I have experienced in terms of Commission reviews. I felt the auditors were extremely helpful and genuinely supportive, so my suggestion is to keep this up. Thank you.’
‘Overall experience was relatively simple, professional and done in a timely manner. Discussions during the meeting were open, honest and relevant. Recommendations were clear and easy for us to implement.’
‘We all feel more confident in our knowledge. Overall it was a positive experience, it was not rushed or made us feel under pressure. There was very much a feeling that the Senior Compliance Officer was working with us, which made it so much easier.’
More information
Guidance for providers on the Financial and Prudential Standards
Targeted reviews webpage
Contact us
If you have any questions or feedback, please email us at F&P.reviews&audits@agedcarequality.gov.au