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Prudential Standards: A Summary for Residential Aged Care Providers

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A recent survey by the Aged Care Quality and Safety Commission revealed that many residential aged care providers do not understand their responsibilities under the Prudential Standards. The survey found that only 25 per cent of residential aged care providers were fully compliant with the Prudential Standards. Here’s a quick summary of what you need to know.

 

What are the Prudential Standards?

Residential aged care providers are required to comply with the Prudential Standards set out in the Aged Care Act 1997 (Cth) and the Fees and Payments Principles 2014 (No.2). The Prudential Standards outline the regulatory requirements of providers regarding their management of refundable accommodation deposits and bonds (including entry contributions). Any provider that holds refundable accommodation deposits or bonds is required to comply with the Prudential Standards.

According to the Aged Care Financing Authority review, aged care providers held a total of $32.4 billion in refundable deposits as at 30 June 2020. With the sector holding such a high number of refundable deposits, the Prudential Standards are designed to safeguard consumers residing in aged care homes while keeping the burden and costs to the aged care industry to a minimum.

 

A Summary of each Prudential Standard

There are four Prudential Standards:

  1. Liquidity Standard
  2. Records Standard
  3. Governance Standard
  4. Disclosure Standard

 

1. Liquidity Standard

Providers holding at least one refundable deposit or bond balance must maintain sufficient liquidity to ensure that they are able to refund the deposit and bond balances that may fall due within the proceeding 12-month period.

Providers must also develop, implement, and maintain a written liquidity management strategy which details:

  • the minimum level of liquidity (expressed in dollars) required to ensure that as a provider they have adequate liquidity to refund bond balances and refundable deposits as they fall due
  • the factors that they must take into account to determine the minimum level of liquidity
  • the way/s that as a provider they will maintain the minimum level of liquidity.

The provider must then maintain the level of liquidity specified in the liquidity management strategy and ensure that it is kept up to date.

 

2. Records Standard

A provider must maintain accurate, comprehensive, and up-to-date information on refundable accommodation deposits, bond holdings and entry contributions. This should be maintained in the form of a refundable deposit register.

The register:

  • may be maintained at either the service level or at a provider level
  • can be in either electronic or hard copy form
  • must include sufficient details on payments made
  • must include the consumer’s name and identification number, refundable accommodation deposit or bond details, the date that the consumer entered the service, the date probate was sighted, and the date payments were made.

 

3. Governance Standard

A provider must develop governance systems to ensure that refundable accommodation deposits and bonds are only used for permitted purposes and are refunded to consumers as and when they fall due. The governance system that is put in place by the provider should be relevant to the complexity and size of the provider’s business. Providers who invest refundable accommodation deposits or bonds in financial products must maintain a written investment management strategy.

To comply with the Governance Standard, providers that hold refundable deposits or bonds must maintain a documented governance system that:

  • assigns responsibilities to key personnel to manage refundable deposits and bonds
  • monitors and controls delegation of responsibilities
  • ensures that those key personnel understand the legal requirements for refundable deposits and bonds
  • has reporting processes in place to ensure that key personnel can monitor and control the use of refundable deposits and bonds
  • detects, records, and addresses any instances of non-compliance.

 

4. Disclosure Standard

Providers have an obligation to disclose information of their compliance with the Prudential Standards to the Secretary of the Department of Health, residents, prospective residents, and their representatives. Providers must complete an Annual Prudential Compliance Statement if they hold refundable accommodation deposits or bonds at any time during the financial year. Providers must also disclose the total amount of the refundable deposits that they hold, their use of the refundable deposits, an independent audit report and details of their financial position. This should be submitted to the Department of Health within four months of the end of the financial period.

Aged care consumers and prospective consumers are entitled to receive information from a provider if they request it. The information that may be requested includes the following regarding the previous financial year:

  • a summary of the permitted uses that refundable deposits and bonds have been used for
  • information about whether the provider has complied with the permitted uses for refundable deposits and bonds
  • a copy of the independent audit opinion of the Annual Prudential Compliance Statement from the previous financial year
  • information about the number of refundable deposit balances and bond balances that were not refunded in accordance with the Standards
  • the provider's most recent audited accounts
  • a copy of the consumer's entry in the refundable deposit register
  • if the provider invests refundable deposits and bons in permitted financial products, a statement explaining the providers investment objectives.

 

Conclusion

It is important that residential aged care providers understand their obligations under the Prudential Standards, and particularly the Disclosure Standard. Failure to comply with the Disclosure Standard may lead to action being taken under the Aged Care Act, including being issued a Notice of Non‐Compliance or Sanctions. Non-compliance with the Disclosure Standard may be taken into consideration in future decisions.

 

Additional Resources

Between November and December 2020, the Aged Care Quality and Safety Commission audited a sample of approved providers across Australia to assess their understanding of their refunding obligations called the Prudential Targeted Campaign – National Compliance Report. Click here to review the report.

The Department of Health has issued guidelines to help aged care providers complete their Annual Prudential Compliance Statement and ensure Compliance with the Prudential Standards. Click here to access the Annual Prudential Compliance Statement (APCS) Guidelines.

 

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