The Aged Care Quality and Safety Commission (the Commission) does targeted reviews as part of our strategy to raise provider awareness of their financial and prudential responsibilities. Targeted reviews help us identify risks for the aged care sector as a whole. They also help us check a provider’s understanding of their financial and prudential responsibilities. The reviews play an important role in our work to improve compliance and build a strong aged care sector.
This targeted review focussed on understanding how providers across Australia:
- invest refundable deposits
- fulfill governance arrangements
- manage liquidity.
Providers of residential and flexible aged care, who hold a refundable deposit, must comply with the prudential responsibilities set out in the Aged Care Act 1997 (the Aged Care Act) and the Fees and Payments Principles 2014 (No.2) (the Fees and Payments Principles).
The Prudential Standards set regulations to make sure providers manage refundable deposits responsibly. This includes the requirement for providers to apply and maintain a written governance system to manage refundable deposits. This comes under the Governance Standard. The governance system makes sure that providers only use refundable deposits for permitted uses and that deposits are refunded on time, every time.
Under the Governance Standard, providers investing refundable deposits in financial products must keep a written investment management strategy (IMS).
An IMS includes:
- procedures the provider follows to make informed decisions
- assessments of financial risks
- how they manage liquidity
- how they handle refundable deposits
- responses to changing risks.
We did a targeted review of 31 providers investing refundable deposits in financial products. We reviewed a wide range of providers, including those with large and small refundable deposit holdings, in rural, regional and metropolitan areas.
We wanted to know whether providers have an IMS and if they are following it. We also assessed the relevant parts of the Governance Standard and the Liquidity Standard.
A provider's approach to investing refundable deposits in financial products links closely with its Liquidity Management Strategy (LMS). Compliance with the Liquidity Standard was not the main focus of our review. However, the review did look at how liquidity and the IMS worked together. It is important that providers:
- regularly review investment risks and the possible impacts on liquidity
- do regular liquidity needs assessments and make sure all relevant parts of the investment strategy are included.
Investment management strategy
All providers we engaged with maintained and follow an IMS. Providers showed a high level of understanding of how important clearly defined policies and processes are. Processes that:
- set out the objectives of their IMS
- identify risks in their IMS
- make sure they maintain enough liquidity.
Many providers worked with third-party experts to develop their IMS, make investment decisions, develop policies and procedures and manage risk. The boards and senior management of these providers actively supervised investment strategies and high-level decisions.
Although IMS compliance was high, we found some areas that could be improved including:
- documenting key governance decisions
- dating and recording decisions by executive decision-makers
- reviewing of IMS changes or updating when aware of non-compliance
- maintaining key staff skills lists
- the skills and experience of staff responsible for managing IMS.
Some minor non-compliance included:
- incomplete references to legislation included in policies, processes and practices
- incomplete documentation of outsourcing arrangements, including board meeting minutes showing what key personnel considered when making decisions
- incomplete processes, steps and clear responsibilities for directors.
Liquidity management strategy
We found compliance with this requirement was high. However, several providers had not included in their LMS:
- the amount of liquid assets to be held as a whole dollar amount (typically a percentage figure had been used instead)
- the factors considered in determining minimum liquidity. For example, the average refundable deposit value or the largest refundable deposit held.
Things to consider
- Are the responsibilities of directors clearly defined and their roles clearly added into steps and processes? For example, are key governance decisions documented, signed and dated?
- Do the staff responsible for your IMS have the right financial management and governance skills and experience?
- Have you set a date each year to review your IMS?
- Are your key personnel skills lists up to date?
- Do your financial controls and governance systems meet your organisation's mission?
- Do your accounting systems and processes make refundable deposits clearly different from working or operating capital?
- Investment Management Strategy fact sheet
- Permitted Uses of Refundable Accommodation Deposits fact sheet
- Governance Standard webpage
- Governance Standard fact sheet
- Permitted Use refundable deposits video.
If you have any questions or feedback, email the Prudential Audits and Targeted Reviews team at email@example.com
You can subscribe to our Compliance Management Insights and our Aged Care Quality Bulletin.