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Financial transparency in aged care

An independent report on aged care providers' financial information says that there is insufficient financial transparency about the use of funds from Government and people in care, which in 2018–19 totalled approximately $25 billion.1

The Royal Commissioners into Aged Care Quality and Safety engaged global professional services firm BDO to analyse the data supplied by aged care providers to the Australian Department of Health. BDO's findings are presented in Research Paper 12 – Report on the profitability and viability of the Australian aged care industry which is available on the Royal Commission's website.

BDO used the Department of Health data, which is not available to the public, and concluded that there are large differences in the way in which individual aged care providers structure their operations and the costs they incur such as interest, management fees and rent. These expense items can range from 0% to 100% of total expenses for different individual aged care providers.

BDO expresses their view that the aged care industry's overall financial performance is unclear because of what they consider to be limited reporting obligations, aged care providers' use of group entity structures, transactions between related entities and the delivery of non-aged care activities by some providers. The industry's reporting obligations are set by the Department of Health.

BDO assessed aged care providers' profitability and viability using a framework in which they had regard to accounting profits, cash flows and various other measures of a provider's ability to access capital. Using this framework, BDO concluded that for 2017–18:

  • 74% of aged care providers were profitable, 13% were unprofitable, 4% were unprofitable but had positive cash flows, and 9% were profitable but had negative cash flows.
  • 53% of aged care providers were 'viable', 8% were 'not viable', and for 39% viability could not be determined because it was dependent on them being able to secure additional capital.

The results above may be materially different in the current economic climate. BDO's report focuses on 2017–18 data as it was the latest year of data available for all providers at the time of BDO's analysis (some providers have a 31 December reporting date and as such had not submitted their 2018–19 data at that point in time).

BDO's report also expresses their view that part of what they believe to be the complexity and uncertainty about the industry's financial performance arises from Refundable Accommodation Deposits (RADs). RADs are interest-free loans to aged care providers by people entering residential aged care. These loans, worth around $30 billion in 2018–19, can be used by aged care providers to make investments and must be repaid when called upon. The loans are guaranteed by the Australian Government, so if an aged care provider were to become insolvent, the loans may need to be repaid to care recipients or their estates by the Government.

BDO's report provides potentially important insights ahead of the Royal Commissioners' upcoming hearings about the funding, financing and prudential regulation of aged care, which the Commissioners wish to have tested and receive robust responses. The hearings on these topics is scheduled for 14–22 September.

The report was prepared for the information of the Royal Commissioners and to the public. Any views expressed in them are not necessarily the views of the Commissioners.

To read the Royal Commission's research papers, please visit the Publications page.
 

1 Aged Care Financing Authority (2020), Eighth report on the Funding and Financing of the Aged Care Industry, pp. 12--13.