The introduction of the new Aged Care Act and Financial and Prudential Standards represents one of the most significant changes to financial governance in the aged care sector in recent years.
The reforms are intended to strengthen financial accountability, improve transparency, protect resident funds and ensure providers have the financial capacity to deliver safe and high-quality care on an ongoing basis. The changes also reflect the increased regulatory focus on provider sustainability and the protection of older Australians following the recommendations of the Royal Commission into Aged Care Quality and Safety.
Importantly, the new framework makes it clear that it is not another compliance exercise for finance teams. The legislation places expectations on boards to understand the organisation’s financial and prudential position, oversee associated risks and ensure appropriate systems, policies and controls are operating effectively. Directors are expected to demonstrate active oversight and informed decision-making regarding financial sustainability, liquidity, investments and the protection of their residents’ funds.
Several common themes are emerging that warrant highlighting:
Non-compliant policies
Financial and prudential policies often do not fully comply with the new requirements.
Many providers have attempted to update existing policies; however, these documents frequently do not address the specific obligations relating to financial and prudential management, liquidity monitoring, investment governance and the protection of resident funds. In many cases, policies reflect the previous prudential regime rather than the expectations of the new standards. This creates a risk that operational practices may not support compliance.
We have developed a checklist for providers to use to help ensure compliance. Please submit the form below for your free copy.
Awareness and education
Despite board members being ultimately accountable for oversight, we continue to observe instances whereby sufficient briefing or training on their enhanced responsibilities under the new regime has not been provided. Furthermore, some governing bodies remain unfamiliar with the practical implications of the new standards.
This could result in boards relying on management and not appropriately challenging key financial assumptions and risks.
RAD management
Another recurring issue we have identified is limited understanding of Refundable Accommodation Deposit (RAD) obligations at board level.
We continue to encounter instances where directors are unclear about RAD refund requirements, liquidity expectations and the need to ensure sufficient funds are available to meet refund obligations as they fall due. Given the heightened regulatory focus on consumer protections and liquidity management, this knowledge gap represents a significant governance risk.
Similarly, there is still uncertainty about permitted use expenditure requirements. Refundable deposits must be used for certain approved purposes, and providers must be able to demonstrate that the use of these funds complies with legislative requirements. Our audit teams are increasingly focusing on whether boards understand these restrictions and whether supporting documentation exists to evidence compliance and decision-making.
Reporting under two frameworks
The current reporting period also presents unique challenges. Providers are effectively operating under two separate regulatory frameworks, with approximately four months falling under the former Fees and Payments Principles and the remaining eight months subject to the new legislative arrangements.
Providers need to ensure appropriate documentation exists to demonstrate compliance throughout the transition period and support the basis for management’s judgments and decisions.
Key priorities for providers
Providers should prioritise board education, undertake a comprehensive review of financial and prudential policies, strengthen liquidity monitoring processes and ensure directors have a thorough understanding of RAD obligations and permitted use requirements.
Ultimately, organisations that invest in governance capability and proactively address these issues will be better positioned to demonstrate compliance, meet their responsibilities and support the delivery of sustainable, high-quality care to older Australians.
Should you require any assistance, please get in touch with your local HLB Mann Judd representative.