Prudential targeted review: refundable deposits and governance systems

Insights report

Introduction

The Commission does targeted reviews as part of our strategy to raise provider awareness of financial and prudential responsibilities.

Targeted reviews help us identify risks for the aged care sector. 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 refundable deposits and governance systems.

Background

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

This includes meeting the Prudential Governance Standard by using a written governance system to manage refundable deposits. This makes sure providers only use refundable deposits for permitted uses. It also makes sure they refund them on time.

Providers must also comply with the Aged Care Quality Standards (Quality Standards) and the Quality of Care Principles 2014.

Quality Standard 8(c) highlights the importance of an organisation’s governance. The governing body is responsible for delivering safe and quality care and services.

Under Quality Standard 8(c), providers must show that they have effective governance systems for:

information management
continuous improvement
financial governance
workforce governance
regulatory compliance
feedback and complaints.

In May and June 2023, we did a targeted review on the relationship between governance compliance under Quality Standard 8(c) and prudential governance for managing refundable deposits.

The review showed a clear link between governance compliance and managing systems effectively. The findings from this review will help us:

identify risks
improve providers’ understanding of effective practices
develop targeted educational materials.

Our approach

We reviewed 14 approved providers across Australia. We compared those that complied with Quality Standard 8(c) against those who didn’t. We wanted to see if there was a difference in meeting governance and refundable deposit responsibilities.

Our findings

Providers generally understood and met their responsibilities for managing refundable deposits.

Providers were able to describe the end-to-end life cycle of a refundable deposit. They were also able to provide an overview of their controls and approaches to meeting regulatory requirements.

However, the review found several areas where providers could improve including:

documenting their governance systems, processes and procedures
updating their records.

Providers meeting Quality Standard 8(c) were more likely to be meeting the Prudential Governance Standard and refunding requirements.

Of the providers in the first group (those that complied with Quality Standard 8(c)):

two thirds had effective governance processes and procedures
almost all were meeting their refunding requirements.

Of the providers in the second group (those that didn’t comply with Quality Standard 8(c)):

almost all didn’t have effective governance processes and procedures
less than half weren’t meeting their refunding requirements.

The review also found that most of the providers:

who met the refundable deposit requirements, had good administrative procedures
made sure key personnel knew what their prudential obligations were through training
faced challenges delivering consistent and up-to-date training because of time constraints
complied with the requirements for permitted uses or refundable deposits
only invested their refundable deposits in authorised deposit institutions. This made sure they would be able to refund deposits when they were due.

Common areas of non-compliance

The types of governance non-compliance we found during our review included:

incomplete or missing written governance and reporting systems
unsigned and incomplete resident agreements (not signed within 28 days of entering the service)
differences in room prices between the provider’s and the My Aged Care website
poor documentation of processes, roles and non-compliance
incomplete and unclear documentation on the roles of key personnel.

Non-compliance for refundable accommodation deposits included:

having incomplete or missing documentation on how they manage refundable deposits
providing refunds after the due dates with incorrect interest calculations
not including the refund day in the interest calculations
using the day after death instead of the day probate was seen when working out the interest rate.

Things to consider as an approved provider

Are your processes and procedures in line with the Prudential Governance Standard?
Do you have written documentation to show that you comply with the Prudential Governance Standard?
Do you clearly define the responsibilities of directors and add their roles into steps and processes? For example, are your key governance decisions documented, signed and dated?
Are your financial controls and governance systems in line with your organisation's mission?
Do you calculate interest by when you sighted probate rather than using the day after death?
Do you make sure residential agreements are signed within 28 days of residents arriving at your service?
Are the room prices on your website the same as those on the My Aged Care website?

Things we will consider

We will provide guidance and further education to providers on the Prudential Governance Standard.
We may do further targeted reviews on the Prudential Governance Standard to support you.
We will use the information we’ve gathered in this review and include it in our systems that identify risk.