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Targeted review of provider compliance with prudential standards; is your organisation prepared?

Victor Harcourt, Anita Courtney, Johanna Heaven, Matthew Goessler and Peter Andreakos

The Aged Care Quality and Safety Commission (Commission) has announced it is conducting targeted reviews of approved providers’ compliance with the Prudential Standards this month (April 2023). As such it is critical that providers understand their obligations under the Aged Care Act and the Fees and Payments Principles.

The purpose of this alert is to provide an overview of the obligations of approved providers under the Prudential Standards and the possible consequences for non-compliance, which may be open to the Commission to impose as part of its upcoming targeted reviews.

Key points

  • This April, the Commission will conduct targeted reviews of approved providers’ compliance with the Prudential Standards to review providers’ understanding these obligations.
  • There are four Prudential Standards under the Aged Care Act and the Fees and Payments Principles, which are:

    • the Governance Standard;
    • the Liquidity Standard;
    • the Disclosure Standard; and
    • the Records Standard.
  • There are various sanctions open to the Commission to impose on providers who are not meeting their obligations under the Prudential Standards, as well as other potential consequences for both providers and key personnel individually.

Targeted reviews of approved providers’ compliance with the Prudential Standards

This month, the Commission will commence its engagement with approved providers to conduct targeted prudential reviews.

The purpose of these reviews is to aim to educate and raise awareness within the sector on a specific prudential requirement, and to review approved providers’ understanding of the Prudential Standards.

Therefore, it is critical for approved providers to identify any gaps in this area which has traditionally not been the subject of as much scrutiny as other Standards.

In our experience, gaps in an approved provider’s compliance with the Prudential Standards arise from the following:

  • Changes in the legislation not being reflected across all the documents and practice;
  • Organisational change not being reflected in the policies and processes or vice versa;
  • Day to day business practice being moulded to meet the needs of the business without cross-checking against best practice;
  • A misunderstanding about what the Standards require;
  • Ineffective compliance monitoring, follow up or evaluation.

  • There are many other reasons which may exist.

    An overview of the obligations of approved providers under the Prudential Standards

    Approved providers must comply with the Prudential Standards set out in the Aged Care Act and the Fees and Payments Principles.

    There are four Prudential Standards:

    • Governance Standard;
    • Liquidity Standard;
    • Disclosure Standard; and
    • Records Standard.
    We have briefly set out the key obligations of approved providers with respect to each of the Prudential Standards below.

    The Governance Standard requires that approved providers implement and maintain a governance system that ensures that refundable deposit balances are only used for permitted uses and are refunded to care recipients in accordance with section 52P-1 of the Aged Care Act.

    Broadly, the Governance Standard requires that approved providers ensure that key personnel are aware of the requirements of the Aged Care Act and the Fees and Payments Principles in relation to refundable deposits. Approved providers must also detect, record and respond to any failure to comply with those requirements.

    The Governance Standard also requires that an approved provider implement and maintain a written investment strategy when they invest a refundable deposit in a financial product specified in the Aged Care Act or a fund specified under the Banking Act 1959. The strategy must set out specific information required by the Fees and Payments Principles and it must be approved by the key personnel who are responsible for the executive decisions of the approved provider.

    The Liquidity Standard requires approved providers to maintain sufficient liquidity to ensure that they can refund any refundable deposit balances that can be expected to fall due in the following 12 months. Approved providers must also develop and maintain a liquidity management strategy in the format specified in the strategy including the minimum level of liquidity.

    The Disclosure Standard requires approved providers to give the Secretary of the Commonwealth Department of Health and Aged Care an annual prudential compliance statement (APCS) for a financial year. The APCS must not contain false or misleading information. It must include specified information in relation to refundable deposits and other statements and information, such as:

    • a statement about whether the approved provider, during the financial year, complied with the Prudential Standards;
    • a statement (if required) as to why the approved provider has not complied with the Prudential Standards;
    • an amount as set out in the approved provider’s liquidity management strategy, as at the end of the financial year, as the minimum level of liquidity;
    • the date on which the approved provider’s liquidity management strategy was last modified or replaced; and
    • an audit opinion on whether the approved provider has complied with the Prudential Standards.

    The Records Standard requires approved providers to establish and maintain a refundable deposit register which must include certain specified information.

    Potential consequences for non-compliance with the Prudential Standards

    There are various sanctions open to the Commission to impose in response to approved providers failing to meet their aged care responsibilities under the Aged Care Act, which include complying with the Prudential Standards. These include:

    • revoking or suspending the approval of a provider;
    • restricting the approval of a provider to specific aged care services;
    • restricting the payment of subsidies;
    • revoking/suspending or prohibiting the allocation of places to providers;
    • varying the conditions of the allocation of places to providers;
    • revoking or suspending extra service status;
    • prohibiting the granting of extra service status;
    • prohibiting the charges of an accommodation payment, accommodation contribution, accommodation bond or accommodation charge;
    • restricting the use of a refundable deposit or an accommodation bond;
    • requiring an approved provider to refund any refundable amounts;
    • requiring repayment of all or part of a grant; and
    • requiring certain payments to be made under the User Rights Principles.

    The Commission also has various powers with respect to non-compliance with the Prudential Standards, including:

    • exercising certain monitoring powers under the Regulatory Powers (Standard Provisions) Act 2014 in relation to non-compliance with the Prudential Standards;
    • requiring that an enforceable undertaking be given by a provider in relation to compliance with the Prudential Standards, which may be enforced in court;
    • applying to a court for an injunction restraining a provider from contravening, or compelling a provider to comply with their obligations with respect to the Prudential Standards; and
    • requiring a person to answer questions or give information or documents relating to suspected non-compliance.

    It is an offence under the Aged Care Act for an approved provider and for an individual who is one of the key personnel of an approved provider to use a refundable deposit in a way that is not permitted. The offence carries a maximum penalty of 300 penalty units (this currently amounts to $82,500) for an approved provider, or imprisonment for 2 years for an individual who is one of the key personnel of an approved provider.

    How can we help?

    Russell Kennedy is experienced in assisting approved providers review policies, procedures and systems for compliance, and with responding to requests or notices from the Commission. We can identify the areas for improvement, provide a suite of documents compliant with the Standards which can be tailored to your organisation and / or training for key personnel.

    Please contact Victor Harcourt if you would like our assistance.

    If you would like to keep up to date with Alerts, news and Insights from our Aged Care Team, you can subscribe to our mailing list here.

    Disclaimer

    The information contained in this Alert is intended as general commentary only and should not be regarded as legal advice. Should you require specific advice on the topics discussed, please contact the firm directly.

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