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Office of Aged Care Quality and Compliance (OACQC)

Aged Care Accommodation Bonds - Protecting residents' savings - information for approved providers

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

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PDF printable version of Protecting residents' savings - information for approved providers (PDF 280 KB)

What is changing?

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.

The arrangements:

• clarify the permitted uses of bonds
• introduce a two year transition period for approved providers to adjust and fully comply with the permitted uses
• introduce a new Governance Standard for approved providers holding bonds
• improve reporting and disclosure for greater transparency and consumer confidence
• introduce additional information gathering powers for monitoring compliance
• remove restrictions on the use of income from bonds, retention amounts and accommodation charges
• introduce criminal penalties for the misuse of bond funds.

The arrangements are made through the Aged Care Amendment Act 2011 and the User Rights Amendment Principles 2011 (No.3).

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.

Why change?

The total value of bonds is growing strongly. At 30 June 2010 approved providers held more than $10.6 billion in bonds on behalf of over 63 000 residents. Past experience with approved providers that failed to meet the prudential standards and timeframes for bond refunds or triggered the Accommodation Bond Guarantee Scheme (Guarantee Scheme) highlighted a number of risks associated with managing bonds. It was also important that regulation focus on the risk that bonds were not refunded, while removing regulation regarding the use of bond income and reducing the burden of reporting to residents.

What are the details?

Permitted uses of bonds

The new arrangements remove uncertainty and clarify the intended purposes for bonds - to provide a capital source of funding for investment in aged care infrastructure, for prudent financial investments and for refunding bonds.

Permitted uses apply to bonds charged on or after 1 October 2011. A two year transition period is in place to assist approved providers to adjust to the permitted use arrangements. Permitted uses include:

• Capital expenditure to:
  • acquire land for building residential care facilities or flexible care facilities
  • acquire, build or significantly alter premises for providing residential care or flexible care
  • acquire or install furniture, fittings or equipment used in providing residential care or flexible care. This is a permitted use where the premises are initially erected or following an extension, a significant alteration or significant refurbishment.
• Investment in particular financial products including:
  • deposits with an authorised deposit-taking institution made available in the course of its banking business
  • debentures, stocks or bonds issued by the Commonwealth, States or Territories
  • securities
  • registered managed investment schemes
  • unregistered managed investment schemes established for the purpose of investment in residential care or flexible care.
• Loans for such capital works or investments made:
  • not to an individual
  • on a commercial basis
  • by written agreement.
• Refunds of bond balances or entry contribution balances.
• Repayment of debt:
  • accrued for capital expenditure or refund of bond balances
  • accrued before 1 October 2011, for the purpose of providing aged care.
• To meet an approved provider’s reasonable business losses during the first 12 months of the approved provider’s operation of a residential or flexible care service.

Note: Except for reasonable business losses in the first 12 months of operating a service, bonds must not be used for routine repairs or maintenance such as painting, plumbing, electrical work or gardening. Bonds must not be used to cover the normal day to day costs of operating a service such as staff wages or the purchase of consumables.

Legislative Reference: Section 57-17A of the Aged Care Act 1997 (the Act), Division 8A of the User Right Principles 1997

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

What are the transitional arrangements?

The new arrangements take effect from 1 October 2011. There is a two year transition period to September 2013 to allow approved providers to become familiar with the permitted use requirements and make any necessary adjustments to fully comply with them.

During the transition period, an approved provider may use bonds charged for entry on or after 1 October 2011 for a purpose relating to providing residential or flexible aged care. That is, during the transition period, approved providers will be able to continue to use bonds for both capital and non-capital purposes in delivering these aged care services.

Approved providers may continue to use bonds acquired before 1 October 2011 in line with the requirements in place before 1 October 2011.

Legislative Reference: Schedule 1 Part 2 of the User Rights Amendment Act 2011 (No.3)

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

Removed restrictions on the use of income from bonds

The legislative changes remove restrictions on how approved providers can use retention amounts, accommodation charges and income derived from bonds. This provides more flexibility to manage cash flow and helps offset the limits on permitted uses for the lump sum element of the bonds.

Governance Standard

Effective governance reduces the risks of misusing bonds, paying bond refunds late or triggering the Guarantee Scheme.

The Governance Standard is intended to ensure that approved providers holding bonds have effective governance systems for managing bonds. This will help to ensure that approved providers only use bonds for permitted uses and bond balances are refunded in accordance with the Act. The Governance Standard is not prescriptive and enables each approved provider to develop policies and systems appropriate to its circumstances. The Governance Standard also requires that approved providers using bonds for financial investments other than deposits with authorised deposit-taking institutions have, and comply with, an investment management strategy.

The requirements of the Governance Standard take effect from 1 February 2012.

Legislative Reference: Schedule 1 Part 2 of the User Rights Amendment Act 2011 (No.3)

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

Disclosure Standard and improved reporting

The Disclosure Standard increases transparency and accountability about how bonds are used by improving the information available about how approved providers use bonds. However, the changes also reduce the requirements to provide detailed information to residents and their representatives automatically so that most information is provided only on request. This should reduce administrative costs for approved providers.

Disclosure to the Department of Health and Ageing (the Department) is through the existing Annual Prudential Compliance Statement (APCS), which from 2011-12 will include requirements about compliance with the Governance Standard and expenditure on permitted uses. Disclosure to the Department through the APCS will minimise extra work for approved providers. To minimise reporting effort, reporting on expenditure on permitted uses is based on existing financial data and it will be possible for approved providers that choose to do so to report expenditure on permitted uses through their General Purpose Financial Report rather than the APCS.

Legislative Reference: Division 3, Subdivision 3.4 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.

Information gathering powers

Information gathering powers are available where the Secretary of the Department believes, on reasonable grounds, that an approved provider:

• has not refunded or is unable or unlikely to refund a bond balance
• is experiencing financial difficulties
• may not have complied with permitted uses for bonds.

In such cases, an approved provider can be asked to provide information about suitability, finances, bond balances, bond use, policies and procedures and roles of key personnel. An approved provider may be required to provide the information periodically. These changes will allow the Department to better target requests for information where there are compliance concerns.

Information gathering powers in force before 1 October 2011 continue to have effect.

Legislative Reference: Section 9-3B of the Act

Criminal penalties

From 1 October 2011, approved providers will be committing a criminal offence if they misuse bonds and fail financially, owing bond refunds. Offences apply to both approved providers and to key personnel.

The offences are intended to reinforce the significance of approved providers’ obligations to their residents in dealing appropriately with residents' funds and ensuring that refund obligations are met. They are not intended to be used in circumstances where breaches have been minor and unintentional. Rather, they are structured to ensure that they only become available in the most extreme of circumstances - where an approved provider has failed to comply with their statutory obligations on the use of accommodation bonds and they have been unable to meet their refund obligations to residents.

The penalties can only apply to key personnel where they have known that bonds are being used for non-permitted purposes, they have not taken reasonable steps to prevent the misuse of bonds and, within two years of the misuse, the approved provider has been placed into liquidation while owing refunds of bonds.

Approved providers can avoid potential liability for an offence by using bonds for permitted uses only.

Legislative Reference: Section 57–17B of the Act

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: Governance Standard – 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.

Quick guide to key differences before and after 1 October 2011

Theme	Before 1 October 2011	After 1 October 2011
Bond use	Bonds must not be used for a purpose that is not related to the provision of aged care	Bonds taken from 1 October 2011 must only be used for permitted uses as defined in the Aged Care Act 1997 Transitional arrangements apply until 30 September 2013
Retention amounts, accommodation charges and income derived from bonds	Retention amounts, accommodation charges and the income derived from bonds could only be used to meet capital works costs, retire debt for residential care, and improve the quality of aged care services	Restrictions removed on the use of retention amounts, accommodation charges and the income derived from bonds
Liquidity standard	No change	No change
Records standard	No change	No change
Governance	No requirement for a governance system to manage bonds	Governance Standard requires a documented governance system Requirement for an investment management strategy where an approved provider invests in particular financial products
Disclosure to residents, prospective residents or their representatives	Detailed information provided automatically on entry and annually as well as on request	Basic information provided automatically Detailed information provided on request
Disclosure to the Department	Reporting on compliance through the APCS	Reporting on compliance through the APCS APCS reporting includes: a cash statement of bonds received and expenditure (from any source) on permitted uses Information about compliance with the Governance Standard and transitional arrangements (where applicable) Reporting of minimum amount assessed as required to maintain liquidity
Departmental requests for information	One-off requests for information	Department may request information to be reported on a periodic basis
Bond misuse	Imposition of sanctions for bond misuse. No criminal penalties for bond misuse	Imposition of sanctions for bond misuse Criminal penalties for approved providers that misuse bonds and fail financially, owing bonds Criminal penalties for key personnel of approved providers that misuse bonds and fail financially, owing bonds - where the person was in a position to influence the behaviour and failed to do so

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.