Prudential targeted review: Loans and debt repayment

Insights report

Introduction

We do targeted reviews to increase provider awareness of their financial and prudential responsibilities. These reviews help us to identify risks and improve compliance across the aged care sector.

This targeted review focused on educating and supporting providers on permitted uses of refundable deposits for loans and debt repayment.

Background

Providers of residential and flexible aged care that hold refundable deposits must comply with the prudential responsibilities set out in the:

Providers must also report on how they manage refundable deposits.

From March to July 2024, we reviewed a sample of providers across the country to assess if they understood and met their responsibilities for loans and debt repayment.

Our findings also help us identify risks and develop targeted education materials.

Our findings

Our review found that most providers didn’t use refundable deposits to fund loans or repay debts. In cases where providers did use refundable deposits for loans:

loans were made on commercial terms
they had clear repayment plans
their arrangements were structured to make financial returns for both the lender and the provider.

Providers submitted documents showing the:

purpose and how they planned to use the loan
loan amounts in dollars
security details explained in the loan agreements
agreed interest rates
commencement, finalisation and termination clauses
consistent review of their loan arrangements and timely repayments.

During the review, we provided education and guidance to help providers understand their prudential responsibilities. This included permitted uses, governance and best practices.

Things to consider

You can only use refundable deposits for loans if you:

use them for permitted uses
use them to support residential or flexible aged care
make them to a person on a commercial basis
manage them through a written agreement
follow strict financial practices to protect refundable deposits
correctly report and record them
make them clear.

Do you know you can use funds to repay debts (referred to in paragraph 52N1(2)(d) or (e) of the Act)?
In your Annual Prudential Compliance Statement you need to report:

the total refundable deposits held
amounts spent during the financial year, whether or not you’ve used refundable deposits
total amounts spent on each of the permitted uses of refundable deposits.

Are you following strong financial management principles, and complying with legislative requirements?
Do you keep good records and comply with the Governance Standard?

Commission actions

We will provide more guidance and education on the permitted uses of refundable deposits to help you understand your obligations.
We will use the information we collect to improve our risk identification systems and address possible issues more effectively.