Long-term business sustainability and resilience is essential for aged care providers following COVID-19 and the Royal Commission. While the Government continues to focus on changing the funding model, what can finance teams do to support reform?
The outcomes of the Final Report of the Royal Commission into Aged Care Quality and Safety (Final Report), compounded by the rolling COVID-19 outbreaks around Australia, have highlighted challenges and obstacles that stand in the way of aged care providers delivering quality care to older Australians.
Despite funding continuing to be a major contributor to the issues faced by the aged care sector, finance leaders can act to proactively manage liquidity risk and optimise data governance to better prepare providers to manage anticipated reform.
Finance leaders are essential in driving lasting change.
Sustainable financial performance is challenging for residential aged care providers with approximately 42% reporting an operating loss in FY19, with financial performance further impacted in FY20 and FY21 as a result of the COVID-19 pandemic.
Financial performance has been directly impacted by the indexation gap between wages and revenue, along with expenses growing faster than CPI and a continued decline in occupancy rates.
Funding continues to be a challenge with the Final Report concluding that funding for aged care is insufficient, insecure, and subject to the fiscal priorities of the Australian Government.
The sector has grown to be too reliant on Refundable Accommodation Deposits (RADs) with an increasing proportion of residents opting for Daily Accommodation Payments (DAPs), making it increasingly difficult for providers to secure loans and manage liquidity.
The Final Report has also highlighted that current regulatory policies and processes lack the transparency, accountability and responsiveness expected of a contemporary regulatory regime and there is pressing need for reform.
While the Government will continue to be responsible for the funding model and any adaptations, aged care finance leaders are integral to leading providers in the response to the Royal Commission and in defining how their organisation can be sustainable and deliver quality outcomes for older Australians.
Aged care finance leaders achieve this by:
Optimising cash flow forecasting and capital expenditure management.
Continued declines in occupancy rates impacted by community perception of residential aged care, COVID-19 fears and an increasing risk over the ability to replenish RADs pose a significant risk to liquidity and provider’s ability to obtain appropriate access to required capital.
Finance leaders can mitigate liquidity risk with robust cash flow models that provide timely insights to manage their organisation’s cash flow, monitoring, and optimising working capital, and ensuring compliance with existing credit facility requirements.
This needs to be supported by developing and administering best in class forecasting and budgeting frameworks and maintaining strategic financial models, including scenario and sensitivity modelling to rapidly respond to changing business or lender needs.
Finance leaders must also establish proactive and preventative maintenance plans, needed now more than ever, to retain attractiveness of facilities to current and future residents. The ability to plan for upgrades and maintenance projects and know the associated cash flow needs will help to prevent unexpected costs and cash flow shortfalls.
Providers can also save costs by planning for preventative maintenance through best practice forecasting and knowing the full lifecycle costs associated with each major asset.
Data governance, process and policy underpinning regulatory compliance.
The Final Report is also leading to regulatory reform, which is likely to lead to greater regulatory oversight. This is likely to bring an increased cost of compliance. Greater scrutiny and more stringent reporting requirements will require finance leaders to rethink how they can optimise their day-to-day activities to better position themselves for this new reality.
There is an opportunity for finance teams to play a key role in managing the critical data quality control and lineage that must be in place to underpin regulatory reporting requirements and drive accurate and timely reporting to support both financial and non-financial reporting requirements of the business.
Assessing current reporting requirements to optimise and automate existing processes in anticipation of new reporting requirements as a result of regulatory reform is a critical first step to prepare for these changes.
Immediate actions for reporting, management and planning.
It is becoming critical for providers to understand and improve data governance activities including critical data elements for regulatory reporting, data lineage, error identification and quantification and data quality controls reviews.
There are opportunities to save time and associated cost of new reporting and compliance requirements whilst improving control through streamlined internal and external reporting processes.
|Regulatory reporting optimisation|
|Cash flow management|
Ensuring financial sustainability and long-term provider viability.
The Final Report has highlighted that ongoing funding challenges along with a lack of maturity in regulatory reporting will need to be addressed through aged care reform. Finance leaders must be supporting their organisations through anticipated Government-led and other changes to ensure financial sustainability and long-term provider viability.
Finance leaders can support business by proactively managing cash flows to better inform decision making, plan for capital expenditure to reduce costs and optimise data governance to improve responsiveness and accountability to a changing regulatory reporting landscape.
KPMG works with clients to develop and provide advice to a range of complex accounting, financial and regulatory challenges. Working with KPMG, we help support you to implement budgeting and cash flow tools, develop proactive asset management plans, automate existing processes and uplift data governance for regulatory reporting.
KPMG support our clients by augmenting client finance functions with our technical specialists.
Insights related to aged care in Australia and the Aged Care Royal Commission.