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Office of Aged Care Quality and Compliance (OACQC)

Aged Care Accommodation Bonds - Governance Standard - information for approved providers

Information sheet for aged care accommodation bonds advice for approved providers on changes from 1 October 2011.

You may download this document in PDF format:

PDF printable version of Governance Standard - information for approved providers (PDF 252 KB)

Why have a Governance Standard?

From 1 October 2011, there are clearer and stronger arrangements to protect residents’ savings held in the form of accommodation bonds (bonds). The arrangements clarify the intended purpose for bonds as a source of capital for investment in aged care infrastructure. They also improve governance arrangements for bonds and provide greater transparency and accountability for bonds. This will improve consumer confidence in the aged care sector by assuring residents that their funds are being used for intended purposes and that their bond balances will be refunded when they fall due.

It is important that boards, governing bodies and key personnel responsible for bonds clearly understand and control how they use bonds. Effective governance reduces the risks of misusing bonds, paying bond refunds late or triggering the Accommodation Bond Guarantee Scheme.

The Governance Standard is designed to help approved providers develop effective governance systems to ensure bonds are only used for permitted uses and are refunded in accordance with the Aged Care Act 1997 (the Act).

These changes are part of the More Support for Older Australians in the National Health and Hospitals Network (2010-11 Budget Measure) and have been developed in close consultation with the aged care industry, consumer groups and the financial services sector.

What does the Governance Standard involve?

The Governance Standard requires approved providers who hold bonds to have in place a governance system for bonds. It does not prescribe the particular type of system. Instead, it describes the key outcomes that need to be achieved. This means approved providers have the flexibility to implement a governance system that suits their particular size and corporate structure and is appropriate for the prudent and accountable management of the bonds they hold. The Governance Standard also requires approved providers that invest in particular financial products to implement and maintain an investment management strategy (IMS).

Requirements

To comply with the Governance Standard, approved providers need to implement and maintain a documented governance system that:

• allocates responsibilities to the key personnel responsible for managing bonds held by the approved provider
• monitors and controls any delegation or outsourcing of these responsibilities
• ensures responsible key personnel are aware of the legal requirements in relation to bonds
• has reporting mechanisms to ensure responsible key personnel can monitor and control the use of bonds
• detects, records and addresses any non-compliance.

Approved providers need to document their governance system and ensure this documentation is kept up-to-date.
If an approved provider becomes aware that their governance system no longer complies with these requirements, they need to modify or replace it with a system that does comply.

The Governance Standard only applies to the management of bonds. Broader corporate governance is a matter for commercial judgement, taking into account wider statutory requirements such as the legislation under which the approved provider is incorporated and best practice resources such as voluntary national standards.

Legislative Reference: Section 23.38A of the User Rights Principles 1997

More Details: Protecting Residents’ Savings – a guide to the arrangements for accommodation bonds from 1 October 2011.
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Investment management strategy

Where accommodation bonds are not immediately required for other permitted uses, approved providers may choose to invest them in order to generate additional income. The Act as amended allows for bonds to be invested in a broad range of financial products. This enables approved providers to manage their financial investments in line with their broader business model and corporate capabilities and provides an additional source of income.

If investing in financial products other than a deposit facility (made available by an authorised deposit-taking institution (ADI) in the course of its banking business) approved providers must implement and maintain an IMS. If an approved provider invests solely in a deposit taking facility provided by an ADI, then the approved provider is not required to implement an IMS. A list of ADIs is located on the Australian Prudential Regulation Authority website at: www.apra.gov.au/adi/pages/adilist.aspx.

The aim of an IMS is to ensure that approved providers have arrangements in place to make informed and prudent decisions on the investment of bonds, to assess the risks of financial investments, including to their liquidity and obligation to refund bonds, and respond to changing risk.

Requirements

To comply with the Governance Standard, approved providers that invest in financial products that require them to have an IMS must implement and maintain a documented IMS that:

• sets out the approved provider’s investment objectives
• sets out the approved provider’s assessment of the level of risk to the approved provider’s ability to refund bonds in accordance with the Act
• details a strategy to achieve these objectives while ensuring the approved provider is able to refund bonds in accordance with the Act
• specifies the asset classes the approved provider may invest in and the investment limits for each asset class
• details key personnel with appropriate skills and experience who are responsible for implementing the IMS.

The IMS must be approved by the key personnel who are responsible for the approved provider’s executive decisions.

Approved providers must ensure that any investment of bonds is in accordance with the IMS.

Approved providers are responsible for keeping their IMS up-to-date and modifying or replacing strategies that do not comply with the requirements.

Legislative Reference: Section 23.38B of the User Rights Principles 1997

More Details: Protecting Residents’ Savings – a guide to the arrangements for accommodation bonds from 1 October 2011.

When do the changes take effect?

The Governance Standard comes into effect on 1 February 2012.

Disclosure Standard

Approved providers will be required to confirm that they comply with the Governance Standard as part of annual disclosure reporting to the Department of Health and Ageing (the Department) or in response to a specific request from the Department.

Legislative Reference: Section 23.40 of the User Rights Principles 1997

More Details: Protecting Residents’ Savings – a guide to the arrangements for accommodation bonds from 1 October 2011 and the information sheet Disclosure Standard – information for approved providers.

Compliance

The Department is committed to robust compliance monitoring to protect residents’ savings and assist approved providers to deliver high quality aged care services. While the immediate focus is on assisting approved providers to prepare for and comply with the new arrangements, existing regulatory powers will continue to apply and may be used where appropriate.

More information

Protecting Residents’ Savings – a guide to the arrangements for accommodation bonds from 1 October 2011 has been produced to cover the new requirements. It is available on the Department’s website at www.health.gov.au.

Information sheets: Protecting Residents’ Savings – information for approved providers and Disclosure Standard – information for approved providers are also available on the Department’s website.

All Commonwealth legislation is available on the ComLaw website at www.comlaw.gov.au. Prior to 1 February 2012, amendments that commence on that date can be found in Schedule 2 to the User Rights Amendment Principles 2011 (No. 3) on the ComLaw website.

For more information, call 1800 200 422 or email: prudential@health.gov.au.

Information is correct as at 1 October 2011

Disclaimer: This document is only a guide to the Australian Government’s law and policies, and cannot take account of individual circumstances. The Department of Health and Ageing recommends that you seek appropriate professional advice relevant to your particular situation.

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