Prudential targeted review: Local Government Authorities

Insights report

Introduction

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 provider compliance and build a strong aged care sector.

This targeted review focused on Local Government Authority (LGA) governance systems and their understanding of the use of refundable accommodation deposits (RADs).

Background

Approved providers of residential and flexible aged care, who hold refundable accommodation deposits, 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). These responsibilities include applying and maintaining a written governance system to manage RADs. This makes sure that refundable deposits are only used for the permitted uses and are refunded on time, every time.

Our analysis of prudential information showed that some LGA providers need some support on how to better manage RADs.

Our approach

We did a targeted review of 14 LGA-approved providers across Australia between November and December 2022. The review focused on the governance systems LGAs had in place for managing RADs. It also looked at their understanding of the permitted uses of RADs. Our goal was to identify areas where providers were not meeting their requirements so that we can give them more education and support.

Our findings

During our review, we found there was a high-level understanding of RAD management. Providers effectively described the end-to-end life cycle of RADs, explaining the controls they had in place and their approach to meeting their responsibilities. Most providers also submitted high-quality documentation, detailed processes and well-defined procedures.

Two providers failed to fully document their governance systems, processes and procedures. Although, they demonstrated a good general understanding of the RAD process. Several providers were not reviewing and updating their documentation regularly. They also were not making updates when there were changes to policies or processes. In each of these cases, providers were open to working with us to resolve the issues and begin complying again.

All the providers that we reviewed made sure key staff were aware of their prudential responsibilities. But they faced challenges in delivering consistent and up-to-date training. Providers who only used on-the-job training noted there was a skill gap when key staff left their jobs. This affected the efficient training of replacement staff.

Most LGA providers invested their RADs in authorised deposit institutions. This guaranteed their ability to refund RADs when they were due.

Most providers had an investment management strategy (IMS), but only 2 providers needed one because they invested RADs in financial products or funds (see: section 50(1) of the Fees and Payments Principles).

Common areas of non-compliance

Overall compliance was high. The areas where we found the providers were not complying were:

Governance systems

Poorly written governance systems or systems that were not complete and inadequate reporting systems.
Documentation that was not complete, unclear processes and not documenting non-compliance.
Lack of clear documentation on the allocation and roles of key staff.

Refundable accommodation deposits

Not fully documenting how RADs are managed.
RADs being refunded after the due date and incorrect interest being applied.
Not including the day of the refund in the interest calculation and using the day after death instead of the day after sighting probate when working out the interest rate.

Things to consider as an approved provider

Are your processes and procedures in line with the Governance Standard?
Are the responsibilities of directors clearly defined and their roles clearly added into steps and processes? For example, are key governance decisions being documented, signed and dated?
Are your financial controls and governance systems in line with your organisation's mission?
Do you calculate interest on the day after the resident is no longer receiving your services?
Are your key personnel skills lists up to date?
Do your accounting systems and processes make refundable accommodation deposits clearly different from working or operating capital?
Are procedures or guidance documents in place for inducting new staff or when key personnel are unavailable to complete specialist tasks?