Royal Commission report uncovers lack of financial transparency over use of aged care funding

An independent report commissioned by the Royal Commission into Aged Care Quality and Safety examining the financial state of Australia’s aged care sector has uncovered a lack of financial transparency when it comes to how providers spend government and user funds.

The Royal Commission engaged international consulting firm BDO to undertake the report, which analysed data supplied by aged care providers to the Australian Department of Health.

BDO found that there are large differences in the way individual aged care providers structure their operations and the costs they incur such as interest, management fees and rent.

The report suggests the aged care sector’s overall financial performance is unclear because of 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.

Assessing aged care providers’ profitability and viability using a framework taking into account profits, cash flows and other measures of a provider’s ability to access capital, the report found that in 2017-18, the majority of providers made a profit.

Data shows:

  • 74% of aged care providers were profitable, 13% were unprofitable, 4% were unprofitable but had positive cash flows, and 9% were profitably 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 depended on them being able to secure additional capital

The report notes that the results may have changed in the wake of the current economic climate due to COVID-19, given that data focused on 2017-18.

The report also expresses the view that the complexity and uncertainty surrounding the aged care sector’s financial performance is due to Refundable Accommodation Deposits (RADs), which are interest-free loans to aged care providers by people entering residential aged care.

The 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 Aged Care Royal Commission recommences next week in Sydney, where the latest hearing will focus on the financing and sustainability of future improvements to the aged care system, the appropriate funding model or models to support the delivery of aged care services, and the prudent regulation of aged care providers.

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