Audit Report No. 05 2009-10
Chapter 10 Protection of Residential Aged Care Accommodation Bonds
Introduction
Accommodation bonds[1]
10.1
Over the next forty years, the proportion of Australians over the age of
65 is projected to double. This ageing of the Australian population is expected
to increase the demand for aged care services, which will necessitate
additional investment in quality residential aged care infrastructure. In order
to meet this demand, the aged care industry requires access to capital to fund
the construction of new aged care homes and to re-build or upgrade existing
homes. Capital funding for the aged care sector is, in part, sourced from
accommodation bonds lodged by residents.
10.2
Residents accessing low level aged care or those receiving extra
services in high level care may be asked to pay an accommodation bond to an
approved provider of aged care. With the average new accommodation bond at $190
000 (as at 30 June 2008), bonds generally represent a significant proportion of
a resident’s life savings. Aged care providers are entitled to retain an amount
from the bond each year for up to five years, in addition to the investment
income derived, in order to improve building standards and increase the quality
and range of aged care services. The balance of the bond is refunded to the
resident, or their estate, on departure from the home.
10.3
Only aged care homes that are certified by the Australian Government as
meeting required standards of accommodation can charge accommodation bonds. As
at 30 June 2008, around 60 000 bonds with a total value of $8 billion were held
by approximately 1000 approved providers of aged care, with an average annual
increase in the total bond value of around 25 per cent.
Regulatory framework
10.4
A prudential scheme to protect accommodation bonds was first established
in 1997 with the introduction of the Aged Care Act 1997 (the Act). In
order to improve the protections for residents paying bonds, the legislation
introduced mandatory requirements for providers that included: a contractual
guarantee of repayment from the provider to the resident; statutory timeframes
for the repayment of bond balances by aged care providers to residents; and the
submission of a certified annual statement by providers that they followed the
requirements, were able to pay liabilities, maintained adequate insurance, and
repaid bonds as required.
10.5
In 2006, the Australian Government supplemented existing prudential
regulations with standards on liquidity, record-keeping and disclosure to
further protect the significant sums of money held by providers on behalf of
residents. The standards are aimed at assisting providers improve their
financial management practices, enhance financial sustainability, and reduce
the risk of default on the refund of bond balances. The changes in 2006 also
introduced a requirement for the annual statement of compliance to be
accompanied by an audit opinion provided by an independent, registered auditor.
10.6
In addition, the strengthening of protections in 2006 included the
establishment of the Accommodation Bond Guarantee Scheme (the Scheme) whereby
the Government guarantees repayment of bond monies to residents if an insolvent
or bankrupt provider defaults on its obligation to refund accommodation bonds.
In the event of the Scheme being triggered, there is provision for the industry
to ultimately pay a levy to allow the Government to recoup the monies repaid to
residents under the Scheme. The Scheme is administered under the Aged Care
(Bond Security) Act 2006 and the Aged Care (Bond Security) Levy Act 2006.
10.7
Since its inception in 2006, the Scheme has been activated on three
occasions, with bond balances to be refunded by the Commonwealth under the
Scheme totalling around $19 million. The Government did not levy the industry
to recoup its outlays in relation to the first Scheme event and a decision is
yet to be made in relation to subsequent events.
10.8
In introducing and augmenting prudential regulations, Australian
governments have established arrangements covering bond refunds, uses for bonds
and derived income and prudential standards, with new standards introduced over
time to reduce the risks to residents and government. The approach taken to
date involves a regime of self-managed funds held by individual aged care
providers whereby providers must meet prudential standards on liquidity,
record-keeping and disclosure, and ensure that bonds and bond income are used
for the purpose of providing aged care to care recipients. However, in order to
allow providers access to bond funds as a source of capital, the legislation
does not prescribe restrictions in relation to the decisions taken by providers
on where they invest bonds. That is, providers are free to determine how they
invest bond holdings as long as they can demonstrate that the bonds, and any
investment income generated, are used to provide aged care to care recipients.
This reflects the policy approach stated by the Government in 2006 that it was
not the Government’s intention to run the business of each provider.
DoHA’s prudential regulation function
10.9
The Australian Government, through the Department of Health and Ageing
(DoHA), is responsible for regulating:
n the prudential
requirements under the Aged Care Act 1997 (the Act) and User Rights
Principles 1997 (the Principles);
n rules regarding the
timeframes for refund of accommodation bonds and the payment of interest on
late refunds; and
n the use of
accommodation bond funds and ensuring that the income derived from them is
directed to improvements in residential aged care infrastructure and services
by aged care providers.
10.10
The aim of prudential regulation is to safeguard the significant and
increasing bond holdings lodged by older Australians residing in aged care
homes, while keeping the regulatory burden and costs to the aged care industry
to a minimum. To this end, the Government has assigned DoHA responsibility for
developing, in consultation with stakeholders, any necessary additional
standards in order to reduce the risks to the residents and the Government. The
establishment of new standards does not involve amendment to the primary
legislation and can be achieved through amendments to the Principles.
Amendments to the Principles require a policy decision by the Australian
Government and are subject to Parliamentary scrutiny.
10.11
DoHA’s role in administering the legislative framework established for
prudential regulation under the Act and the Principles primarily comprises the
following core activities:
n monitoring
compliance and acting on non-compliance by approved providers with their
prudential responsibilities: this involves assessing audited annual
provider compliance statements, evaluating complaints data, reviewing
regulatory intelligence, investigating possible cases of non-compliance and
addressing non-compliance;
n educating and
informing approved providers and care recipients of their rights and
responsibilities: this involves producing and distributing advisory
materials to assist stakeholders to understand and meet prudential
requirements;
n monitoring the
efficacy of the policy framework for prudential regulation: this involves
identifying possible inefficiencies and gaps in the prudential framework, and
determining the appropriate remedial response, which may include seeking
amendments to the primary legislation or introducing new prudential standards;
and
n safeguarding bonds:
this involves administration of the Accommodation Bond Guarantee Scheme
including the Aged Care (Bond Security) Act 2006 and the Aged Care
(Bond Security) Levy Act 2006.
10.12
Within the legislative framework established by Parliament, DoHA has
discretion to target its regulatory resources across its core activities in
order to gain reasonable assurance as to providers’ compliance with established
regulations. In 2008–09, the department had resourcing of $1.9 million and 12
central office staff to perform the prudential regulation function.
10.13
The department’s administration of prudential regulations is positioned
within the much larger national quality assurance framework for residential
aged care established under the Act. This quality framework imposes a broad
range of regulations on aged care providers in the key areas of accreditation,
certification, and support for users’ rights, which includes complaints
investigation. Responsibility for regulation under the framework is broadly
allocated across DoHA and portfolio agencies.
10.14
Government reforms to the regulatory framework over time have
necessitated an expansion of DoHA’s regulatory responsibilities and have
required the acquisition and development of new, specialist skills and tailored
regulatory arrangements. In particular, it has been necessary for DoHA to
acquire skills in areas such as financial analysis and insolvency in order to
monitor prudential compliance and to ensure the effective operation of the
Scheme.
10.15
DoHA has also facilitated the evolution of the regulatory framework for
prudential regulation and commenced work to enhance arrangements in light of
its initial experience. Further changes to the legislative framework to
strengthen protections for residents’ bonds and improve the operation of the
Scheme, based on DoHA’s initial regulatory experiences, were passed by
Parliament in December 2008.
Recent developments
10.16
In April 2009, the Senate Standing Committee on Finance and Public
Administration reported on its inquiry into Residential and Community Aged
Care in Australia. The report commented on a broad range of residential
aged care issues, including financial risk factors in aged care and the
viability of aged care providers. The committee considered there was a need to
establish a clear understanding of the financial status of aged care providers
and recommended that DoHA undertake a ‘stress test’ of the aged care sector in
order to measure the sector’s financial wellbeing.
The Audit[2]
Audit objective and scope
10.17
The audit objective was to assess DoHA’s administration of prudential
arrangements for the protection of residential aged care accommodation bonds.
10.18
The ANAO’s assessment was based on the following criteria:
n DoHA has a sound
governance framework to support prudential regulation;
n DoHA’s oversight of
prudential arrangements is sound; and
n DoHA effectively
manages compliance with prudential arrangements.
10.19
The audit methodology was developed in accordance with the better
practice principles outlined in the ANAO’s Administering Regulation
Better Practice Guide, which was published in March 2007. The audit report
examines the extent to which the department has incorporated these principles
into its prudential regulation function.
10.20
An examination of policy matters, such as the size of accommodation
bonds or distinguishing between high care and low care in allowing the
application of bonds, was outside the scope of this audit.
Overall audit conclusion
10.21
The ANAO made the following overall audit conclusion:
The ageing of the Australian population is expected to result
in an increase in demand for quality residential aged care homes and an
expansion in building works to meet this growing demand through new and
redeveloped infrastructure. Capital funding to support this increased
investment in aged care homes will, in part, be sourced from resident
contributions in the form of accommodation bonds.
Since the inception of prudential arrangements in 1997, there
has been rapid growth in the number of bonds, the total value of bond holdings
and the proportion and diversity of aged care providers relying on bonds to
fund the delivery of aged care services. The scale of bond holdings (now
totalling some $8 billion), the self-managed model of stewardship, the ability
of a large and diverse range of providers to make unfettered investment
decisions relating to residents’ funds, and ongoing structural changes in the
aged care sector including the emergence of larger and more complex providers
and the entry of major publicly listed corporations, present new challenges for
the Department of Health and Ageing (DoHA). These challenges and successive
government reforms of regulatory arrangements for accommodation bonds have
expanded the scale of DoHA’s responsibilities.
In the context of these challenges, the administrative
framework established by DoHA to manage prudential arrangements for the
protection of residential aged care accommodation bonds does not sufficiently
support effective regulatory oversight. The department has established some of
the elements necessary to underpin a sound administrative framework, such as a
dedicated prudential regulation capability, a separate database to hold
prudential data, and an annual audited provider compliance statement process.
Notwithstanding, the following three key areas require attention in order to
strengthen regulatory oversight: the systematic assessment and treatment of
prudential risks that have resulted from new and evolving threats; the
expansion of DoHA’s regulatory activities to include whether bonds and bond
income are being used for the purpose of providing aged care as established
under the Aged Care Act 1997 (the Act); and the development of robust
approaches to effectively identify and act upon instances of provider
non-compliance with prudential regulations.
Managing risks to effective regulation
DoHA has indicated that the department is aware of a range of
prudential risks, had considered their impact, and is working on approaches to
manage these risks. Approaches included liaison with key stakeholders, such as
major financiers and insolvency practitioners, to build an understanding of
contemporary underlying factors that contributed to the levels of risk. While
acknowledging departmental work in this area, DoHA’s regulatory activities had
remained generally reactive in nature and were not informed by the systematic
identification of risks to the protection of bonds. There is scope to
strengthen the department’s capacity to identify and assess the significance of
emerging threats, through effective risk management and the targeted collection
of regulatory intelligence. Additional work in these areas would better
position DoHA to reduce the likelihood of adverse events by adjusting
regulatory settings or tailoring its compliance activities.
Regulatory coverage
While providers’ decisions on where to invest bond holdings
are unfettered, there has been a legislated requirement since the introduction
of the Act in 1997 for bonds and bond income to be used for the purpose of
providing aged care to care recipients. Access to bonds and bond income is an
important avenue of funding for the aged care industry and is intended to
complement other funding sources to improve the quality of aged care
infrastructure and the range of aged care services. Currently, DoHA responds to
the possibility of non-compliance with the legislated uses of bonds and bond
income by employing its information gathering powers on a case-by-case basis
once a provider presents with problems. DoHA has not, however, established
regulatory processes to determine provider compliance with legislated uses for
bonds and bond income.
The department has recently commenced work on the development
of legislative options for consideration by the Government to clarify the uses
of accommodation bond funds. By clarifying the use of bonds, DoHA considered
that the department would be better positioned to assess whether aged care
providers are compliant with the legislated uses of bonds and derived income
under the Act.
Monitoring compliance with prudential regulations
While DoHA has stated its approach to compliance in general
terms in the User’s Guide to the Regulation of Approved Providers Holding
Accommodation Bonds, it has not comprehensively documented its approach to
the monitoring and management of non-compliance over time in the form of a
compliance strategy and underpinning compliance schedule. As a result, there is
limited assurance that the department’s activities to monitor provider
compliance with prudential regulations are being effectively managed over time.
As prudential regulation of around 1000 aged care providers is delivered by a
relatively small team with an annual operating budget of around $2 million, it
is important for the department to employ a cost-effective approach to the
monitoring of compliance with prudential regulations. An approach of this type
would inform the establishment of a balanced program of compliance activity
targeting the department’s limited resources at the highest priority compliance
risks and supporting the active management of changing and emerging risks to
provider compliance.
To enhance regulatory performance and, as a consequence,
ensure the protections intended by the regulatory framework are realised, the
ANAO has made seven recommendations to strengthen DoHA’s administration of
prudential arrangements.
ANAO recommendations
10.22
The ANAO made the following recommendations:
Table 7.1 ANAO recommendations, Audit Report No. 05
2009-2010
1.
|
In order to improve its regulatory effectiveness, the ANAO
recommends that DoHA adopts a structured and systematic risk management
methodology for its prudential regulation of residential aged care
accommodation bonds to: routinely identify, analyse, document, evaluate and
monitor regulatory risk; rank risks, based on assessments of likelihood and
consequences; and plan and conduct activities to treat risks.
DoHA response: Agreed
|
2.
|
To improve DoHA’s internal management and external
accountability for its prudential function, the ANAO recommends that the
department establishes an integrated and balanced set of performance measures
and targets for key regulatory activities, against which the achievement of
prudential regulation objectives can be assessed and reported to internal and
external stakeholders.
DoHA response: Agreed
|
3.
|
The ANAO recommends that DoHA enhances its regulatory
approach to include reviews of whether aged care providers are using bonds
and bond income for the purpose of providing aged care to recipients as
required in the Aged Care Act 1997.
DoHA response: Agreed
|
4.
|
In order to better inform stakeholder expectations
regarding the service levels to be achieved and the code of conduct to be
observed, the ANAO recommends that DoHA:
(a) develops, in consultation with stakeholders, a client
service charter and regulatory code of conduct in relation to the prudential
regulation of residential aged care accommodation bonds; and
(b) reports annually on performance against the charter.
DoHA response: Agreed
|
5.
|
The ANAO recommends that, in order to ensure nationally
consistent implementation of prudential arrangements, DoHA establishes policy
and procedural documentation for key aspects of its prudential regulation of
residential aged care accommodation bonds.
DoHA response: Agreed
|
6.
|
In order to plan and coordinate its prudential regulation
compliance activities and facilitate the monitoring of compliance trends over
time, the ANAO recommends that DoHA documents its compliance strategy,
promulgates the strategy to internal and external stakeholders, and routinely
reviews the strategy.
DoHA response: Agreed
|
7.
|
The ANAO recommends that DoHA establishes a process or
system to capture, collate and share regulatory intelligence from internal
and external sources to build a risk profile of regulated entities.
DoHA response: Agreed
|
The Committee’s review
10.23
The Committee held a public hearing on Wednesday 25 November 2009 to examine
this audit report. Witnesses from the following agencies attended and gave
evidence:
n Department of Health
and Ageing (DoHA); and
n Australian National
Audit Office (ANAO).
10.24
The Committee heard evidence on the following issues:
n risk management;
n record keeping and
documentation;
n assisting aged care
providers and identifying at risk providers;
n non-compliance
issues;
n liquidity of
providers;
n investing and using bond
money; and
n smaller providers in
low-income areas.
10.25
The Department’s opening statement acknowledged the ANAO’s contribution
to assisting the administrative arrangements supporting the prudential
regulation of accommodation bonds. Implementing the ANAO’s findings was a high
priority for the Department, as well as ensuring changes are effective and
sustained.[3]
10.26
Corporate risk management planning and documentation was an area where
the ANAO made a number of recommendations for improvement. DoHA’s 2009-10 business
planing has involved extending the scope of risk analysis and performance
measures, as well as building upon existing policy and procedural
documentation.[4]
Risk management
10.27
The Audit Report noted that DoHA has not effectively implemented a
structured and systematic risk management approach to inform its administration
of prudential arrangements. The ANAO also found that the Prudential and
Approved Provider Regulation Branch’s 2008-09 operational plan contained high
level risks without sufficient underpinning information. Recommendation 1 of
the audit was that DoHA adopts a structured and systematic risk management
methodology for its prudential regulation of residential aged care
accommodation bonds.[5]
10.28
The Committee asked for further information about action the department
has taken around risk management. DoHA stated that its 2009-10 planning has
involved enhancing risk management planning for prudential regulation:
extending the scope of their risk management plan and explicitly separating
internal administrative risks. In addition:
We have more explicitly identified risks around regulatory decision
making and access to appropriate staff with appropriate skills and we have more
clearly set out the sorts of strategies that we will pursue to manage those
risks. We have also more explicitly set out the external risk factors that may
impact on an approved provider’s ability to meet their prudential obligations.[6]
10.29
The ANAO noted that the PRB operational and business plans were not
routinely reviewed and updated to ‘account for changes in the regulatory
environment or work program priorities, for example the impact of the changed
financial climate in late 2008 on provider compliance’.[7]
The ANAO also found the OACQC business plan did not identify specific
prudential risks.[8] Considering the high (and
increasing) value of accommodation bond holdings, and acknowledging DoHA’s
response to Recommendation 1 of the Audit Report, the Committee asked what work
DoHA has undertaken to mitigate and manage the risk posed by the global
financial downturn on bond holdings.
10.30
DoHA explained that the Department:
… has monitored several key factors affecting prudential
risks such as trends in the profitability of approved providers and the impact
of the global financial downturn on the sector. This included meeting with a
number of major aged care financiers as the global financial downturn began to
unfold to assess the risks and implications for aged care.[9]
10.31
The ANAO notes the PRB has had a role in several cases in departmental
efforts to transfer ownership from a troubled provider to a new provider, such
as through negotiating ownership or service delivery matters, and that this may
pose risks to the ‘perceived objectivity and impartiality of a regulator’.[10]
The ANAO notes that formally recognising risks and considering mitigation
strategies in such cases would help the department manage potentially
conflicting roles and responsibilities.[11]
10.32
The Committee asked DoHA if the Department intend to formally record
such risks and mitigation strategies. DoHA indicated that the Aged Care Act
1997 governs the transfer of aged care services between approved providers
and that decisions regarding transfer of services are made by a separate
delegate outside the PRB.[12] The Department confirmed
that PRB:
… has adopted a more detailed approach to the identification
of those internal risks that may affect the effectiveness of its administration
of the prudential framework, including the management of approved providers in
financial difficulty.[13]
Record keeping and documentation
10.33
The ANAO found that DoHA’s current record-keeping did not meet better
practice standards or comply with departmental policy.[14]
The ANAO noted that weaknesses had been identified in this area in previous
audits, indicating that DoHA had not made the necessary improvements.[15]
The Committee asked the Department what actions it was taking to improve their
record-keeping procedures. DoHA replied:
Staff in Prudential and Approved Provider Regulation Branch
have been reminded of obligations and responsibilities for record-keeping and
are receiving formal training on Departmental records management policies and
procedures. A guidance manual on record-keeping procedures is being developed
and will be provided to all staff in Prudential and Approved Provider
Regulation Branch.[16]
10.34
DoHA informed the ANAO that the PRB did not have a documented risk-based
strategy or compliance schedule but had outlined its approach to the management
of prudential non-compliance in its User’s Guide to the Regulation of
Approved Providers Holding Accommodation Bonds.[17]
The ANAO recommended that DoHA document its compliance strategy, promulgate
the strategy to internal and external stakeholders, and routinely review the
strategy.[18]
10.35
In its response to this recommendation, the Department said it would
review, update and expand its User’s Guide to the Regulation of Approved
Providers Holding Accommodation Bonds to include more detail and
incorporate recent experience. The Committee asked DoHA what progress had been
made with this project. The Department informed the Committee it had replaced
the User’s Guide to the Regulation of Approved Providers Holding
Accommodation Bonds with a revised publication, the Residential Care
Manual 2009, released in September 2009.[19] It further informed the
Committee:
The Prudential and Approved Provider Regulation Branch is
updating information on its prudential compliance strategy, including providing
information that the Department uses in assessing compliance and the ways the
Department may respond to a range of non-compliance risks. The updated strategy
will balance the need to provide more detailed information on the Department’s
assessment of prudential compliance with the risk that some approved providers
may use the information to attempt to evade their regulatory responsibilities.[20]
Assisting aged care providers and identifying at risk providers
10.36
A significant area of interest and concern for the Committee is the
stability of aged care providers.
10.37
Asked what changes to organisational planning will mean ‘on the ground’
for aged care providers, DoHA advised that additional information will be made
available to providers about the Department’s regulatory tasks to inform aged
care providers on where any problems are arising.
For instance, we recently put out the results of the 2007-08
compliance processes to identify where approved providers were having more
difficulty in meeting their obligations. Another key change that we have made
is that we have set up a framework to more systematically and regularly review
our largest approved provider groups, to explore with them how they are
travelling and to raise any issues that we have identified as part of a more
holistic assessment of the group’s performance. They are a couple of the key
changes.[21]
10.38
Asked how providers are performing, DoHA stated that they had undertaken
two visits with the two largest approved providers group, with things ‘travelling
okay’.[22] The Committee is pleased
to see additional effort put into working with the largest providers; this
represents a good approach to ensuring provider stability and obtaining feedback.
10.39
DoHA was asked about the number of at-risk providers and if they are
identifiable. Various means are used to identify homes at risk of not repaying
accommodation bonds. DoHA was unsure about the specific number of providers
being monitored, ‘but we are monitoring homes that we consider have some of the
markers that could lead to default’. The Department is responding to findings
of the ANAO and strengthening their monitoring targeting and refining their
markers of home default.[23]
10.40
The ANAO reiterated their view, mentioned by DoHA, that improvements to
monitoring would be based on better targeting and strengthening established
mechanisms (one recommendation from the audit was to establish a process to
capture, collate and share regulatory intelligence in order to build a risk
profile of regulated entities).[24]
10.41
A standard procedure for identifying at risk providers is to monitor
providers that have a large amount of bond money. Another approach of DoHA is
to examine the financial arrangement of homes that are brought to their
attention because of quality concerns:
… through a complaint, through an accreditation result,
through an agency visit or through… an unannounced visit made by the
department… Generally speaking—not always—we find that there is a correspondence
between a default on quality and a default on bonds.[25]
10.42
The Committee suggested that another indicator of risk is where a
provider carries out another business unrelated to aged care. DoHA agreed,
however noted that they are not in a position to necessarily know if this is
the case.[26]
10.43
Asked to elaborate on the profile of providers that have encountered
financial difficulties, DoHA provided a broad overview of common factors found.
Of the approved providers that have either failed or got into significant
financial difficulties, there have not been a lot of common elements. There was
‘not really any consistency with the ownership structure’.[27]
10.44
Some common elements, however, were evident:
n ‘very poor financial
records’ that were likely to be contravening the Corporations Act;
n such providers were
not receiving conditional adjustment payments, a supplementary payment
contingent mainly on lodging audited general purpose financial reports; and
n additionally, steep
drop-offs in quality of care were evident.[28]
10.45
The lack of a clear pattern leading up to financial difficulties
presents challenges for the Department in identifying risk indicators that
provide clear, early warning of problems.[29]
10.46
The Committee encourages DoHA to continue to develop their targeted approach
to monitoring, as outlined in the ANAO’s audit report.
Non-compliance issues
10.47
The ANAO noted that at least one case had arisen where a contracted
processing firm that processes Annual Prudential Compliance Statements from
providers had incorrectly processed a qualified audit opinion as being fully
compliant (based on the advice of the provider).[30]
The ANAO suggested that DoHA could undertake a risk-based approach to review
audit opinions or better utilise contracted resources.
10.48
The Committee asked what action DoHA had taken to minimise the
likelihood of not fully taking into account an auditor’s opinion. The
Department confirmed that it is moving to a risk-based approach and indicated
that the case in question had occurred in the 2006-07 Annual Prudential
Compliance Statement return and that the PRB:
… subsequently implemented a policy whereby all audit
opinions are reviewed by Departmental staff, irrespective of whether the Annual
Prudential Compliance Statement was referred by the contractor for consideration.[31]
10.49
The ANAO found that departmental investigators do not generally seek
evidence to corroborate statements about remedial action made by aged care
providers, who have been contacted by the department to undertake corrective
action, in response to cases of prudential non-compliance.[32]
The ANAO suggested DoHA adopt a risk-based approach to collecting evidence to
demonstrate remediation of non-compliance. The Committee asked the Department
what action it had taken to adopt such a risk-based approach.
10.50
DoHA told the Committee the PRB already adopts a risk-based approach
when seeking evidence to demonstrate remediation of non-compliance.[33]
The Department assured the Committee it continues to refine these procedures:
The Prudential and Approved Provider Regulation Branch will
continue to build on its risk-based approach for seeking evidence of
remediation of non-compliance as part of the work to update its prudential
compliance strategy. The Prudential and Approved Provider Regulation Branch is
working with the Department’s State and Territory Offices (STOs) to develop a
prudential ‘check list’ of the types of evidence that could be sought when
resolving prudential-related complaints. The Prudential and Approved Provider
Regulation Branch is also working to develop procedural documentation regarding
evidence to be sought to demonstrate remediation of prudential non-compliance.[34]
Liquidity of providers
10.51
Asked about the liquidity held by providers, DoHA explained that it
varies significantly:
… the prudential requirements we have in place include a
liquidity requirement, but it has quite deliberately been pitched on an
outcomes basis, so we put it on the approved provider to assess their business
needs, including issues like the number of bonds they hold, their difficulty in
replacing departing residents and the time it takes to access bonds from
incoming residents to determine their own business needs, the liquidity they
consider they need to meet accommodation bonds within the time frames that are
required. So you will see quite a divergence in liquidity.[35]
10.52
DoHA stated that there is a requirement for these issues to be
encapsulated in a liquidity management strategy. If concerns were identified,
such as a pattern of late bond refunds, a provider’s liquidity management
strategy would be reviewed.[36]
Impact of property and ownership structure
10.53
The Committee asked whether Victoria has a big leasehold base for aged
care homes, and if this presented a greater risk to providers than those who
owned freehold. DoHA stated that there was no clear link between property
ownership and financial problems. There have been two homes fail in Victoria,
in one case the provider owned the property and in the other the provider
leased the property. Outside of Victoria, however, ‘the bulk of the cases have
been approved providers that own the land and buildings themselves’. The homes
that failed in Victoria were both run by private for-profit organisations,
whereas outside of Victoria the main cases of failure have been community based
organisations.[37]
Investing and using bond money
10.54
The audit noted that DoHA had not established processes to monitor
whether bonds and bond income was being used for appropriate purposes. Recommendation
No. 3 of the audit recommended that DoHA review whether aged care providers are
using bonds and bond income for providing aged care, a requirement under the Aged
Care Act 1997.[38] In response to this,
DoHA are developing a proposal to put to government ‘that would allow us to
come a lot closer to assuring that the bond money was utilised, in a general
sense, in the interests of aged care… but we want flexibility in the way in
which we put proposals to government to consider how this might be done’.[39]
10.55
In response to DoHA’s comment on potential legislative changes in this
area, the ANAO made the following comment:
In the interim, DoHA should administer compliance within the existing
legislative provisions under the Act through the establishment of appropriate processes
to gain an assurance that providers are using accommodation bonds for the provision
of aged care to care recipients and bond income to improve building standards and
the quality and range of aged care services.[40]
10.56
While seeking legislative amendments is a positive step, the Committee is
disappointed that such an important issue was not addressed prior to the ANAO
audit. Additionally, the Committee urges DoHA to establish some process to
obtain information on whether bonds and bond income are being used for
legislated purposes (using a targeted risk based approach, not just being
reactive when issues arise) within the current legislative framework, without
the need for legislative reform.
Recommendation 18
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The Committee recommends that the Department of Health and
Ageing (DoHA) report back to the Committee within twelve months of the
tabling of this report on DoHA’s implementation of Recommendation Number 3
from the Australian National Audit Office Report No. 5 2009-10, outlining
progress towards monitoring whether or not bonds and bond income is being
used according to the requirements of the Aged Care Act 1997.
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10.57
The Committee questioned the Department about the need to have
visibility of where bond monies are invested (there are no restrictions on
where and how providers invest bonds). The Department acknowledged that this
was a ‘delicate area’. The ANAO commented that ‘there needs to be coverage of
these matters’ without ‘putting an unnecessary burden on the industry’, using a
risk profiling or other targeted arrangement: ‘Hence, high-risk providers are
scrutinised differently from those who are a lower risk and who do not
necessarily need that burden’. The Department stated that advice will be
provided to government on getting a balance between the need to have visibility
and not intruding into private business arrangements.[41]
10.58
Some members of the Committee were concerned that the money received for
bonds is included in the operating accounts of care facilities rather than a
separate trust account that would impose restrictions on where the money is
invested. Others maintained that introducing prescriptive measures on investment
options was unworkable. DoHA indicated that the major concern of both
government and industry was the interests of the ‘frail aged person in their
care’ and that, despite a number of facilities going into liquidation in recent
years, all bonds had been repaid.[42] However, the ANAO noted
that this was due to the Government activating the Accommodation Bond Guarantee
Scheme (the Scheme) three times since 2006 refunding bond balances totalling
$19 million that were jeopardised when providers went into liquidation.[43]
Smaller providers in low-income areas
10.59
The Committee expressed concern that smaller providers operating in
low-income areas who have access to fewer bonds may be disadvantaged as they
would have less funds to invest and draw on for capital programs. DoHA informed
the Committee that the government has a number of programs in place to assist
these providers including special capital grants, a concessional scheme whereby
providers receive an extra payment in lieu of a bond and a zero interest loans
initiative.[44]
Conclusion
10.60
The Committee understands the importance of aged care accommodation
bonds to the capital growth of aged care facilities and acknowledges that to
date no aged care clients have suffered the loss of their bonds. However, the
Committee is concerned at the potential for loss to occur and would like to see
the prudential regulation strengthened with more attention paid to risk
management implementation and ongoing monitoring.
10.61
The Committee believes that full implementation of the recommendations
made by the ANAO will improve DoHA’s administration of prudential arrangements
for the protection of residential aged care accommodation bonds and assist in
providing ongoing care for our frail aged.
Sharon Grierson MP
Chair