Prudential targeted review: Making deductions from refundable deposits

Insights report

Introduction

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

This targeted review focused on providers that made deductions from refundable deposits in at least 2 of the last 3 financial years.

Background

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

This includes reporting on how you manage refundable deposits.

Our findings will help you to understand your responsibilities. They will also help us identify risks and create targeted education materials.

From May to June 2024, we reviewed a sample of providers across Australia to assess if they understood and met their responsibilities for making deductions from refundable deposits.

When an older person moves into your residential or flexible aged care facility you must enter into an accommodation agreement with them.

You must make sure this agreement includes the amounts you can deduct from a refundable deposit.

When an older person leaves your service, you must work out the refundable deposit balance and calculate interest after deducting approved amounts from the deposit.

You can only make deductions from refundable deposit balances if the older person has agreed to it in their accommodation agreement. These may include:

amounts owed under an older person’s accommodation bond agreement, care recipient agreement or extra services agreement
interest on amounts owed (calculated from one month and one day after the fee is payable, until the fee is paid)
retention amounts
daily payment amounts agreed by the older person in writing.

The Records Standard sets out that you must keep a refundable deposit register. The register must set out the deducted amount, date and reason for any deduction made from the refundable deposit.

Our findings

Our review found that most selected providers were compliant when making deductions from refundable deposits.

However, we did identify some areas of non-compliance with the Disclosure Standard, Records Standard and Governance Standard.

Common issues included:

not refunding refundable deposits within the legislated timeframe
missing ‘refund due dates’ and the ‘probate sighted dates’ in their refundable deposit registers
not sending disclosure letters to people receiving care within 4 months of the end of the financial year
leaving out required details in annual disclosure letters and statements, such as the right for a person receiving care to receive information they’ve asked for within 7 days
not issuing yearly statements showing monthly balances
not enough explanation of governance systems.

Some providers also faced system errors that led to incorrect refundable deposits amounts.

We worked with providers to address these issues. By the end of the review, all providers understood their responsibilities and had taken steps to make sure they comply in the future.

Things to consider

Do you have accommodation agreements and are they up to date?
Do your accommodation agreement documents clearly explain deductions, including the amounts in dollars?
Are all of the deductions permitted?
Have people receiving care asked for the deductions in writing?
Does your refundable deposit register include all of the deductions and the relevant details?
Do you notify people receiving care or their representatives about deductions?
Do you make sure you make all permitted deductions before calculating interest on the refundable deposit?
Does your refundable deposit register include the required fields such as ‘refund due dates’ and the ‘probate dates’?
Do you send disclosure letter statements to people receiving care who paid a refundable deposit within 4 months of the end of the financial year?
Do you send annual disclosure letters and annual disclosure statements and specify that people receiving care must receive information they’ve asked for within 7 days?
Do you send out yearly statements that include monthly balances?

Commission actions

We will provide guidance and education on making and recording deductions from refundable deposits.
We will offer extra guidance on the Disclosure Standard and Governance Standard requirements.
We will do more targeted reviews on refunding refundable deposits.
We will use the review findings to improve our systems to identify risk.