Submission Discussion paper: Proposed changes to financial reporting for providers of residential aged care and home care

Transcription

1 Submission Discussion paper: Proposed changes to financial reporting for providers of residential aged care and home care 27 February 2015 Director, Financial Performance Section Aged Care Policy and Reform Group Department of Social Services PO Box 7576 Canberra Business Centre ACT 2610 ACSA CONTACTS Adj Prof John G Kelly AM, CEO jkelly@agedcare.org.au Heather Witham, Manager, Government Relations and Policy hwitham@agedcare.org.au Tim Dixon, Manager, Public Policy tdixon@agedcare.org.au AGED AND COMMUNITY SERVICES AUSTRALIA Level 1, 10 Thesiger Court Deakin ACT 2600 (02)

2 ABOUT ACSA Aged and Community Services Australia (ACSA) is the leading national peak body for aged and community care providers. It represents church, charitable and community-based organisations providing housing, residential care, community care and home support services to older people, younger people with a disability and their carers. ACSA members provide care and support in metropolitan, regional, rural and remote regions across Australia. Mission-based and other not-for-profit (NFP) aged care organisations are responsible for providing services to those older Australians who are most in need. Not-for-profit organisations deliver about 60 per cent of residential aged care services and more than 80 per cent of all community aged care in Australia. 1 These organisations are visible and highly accessible in the community and as a result, the public relies on them for service, support and care. The broad scope of services provided by ACSA s membership and the leadership they display gives it unique insights into the challenges and opportunities that come with the ageing of the population. ACSA is made up of the following members: Aged and Community Services Association of NSW & ACT (ACS NSW&ACT) Aged and Community Services SA & NT (ACS SA&NT) Aged and Community Services Tasmania (ACS Tas) Aged and Community Services Western Australia (ACS WA) Aged and Community Services Australia - Victoria (ACSA Vic) Aged and Community Services Australia - Queensland (ACSA Qld) Aged & Community Services Australia Australian Government Department of Social Services (2014). Report on the Operation of the Aged Care Act , Canberra,

3 INTRODUCTION ACSA welcomes the opportunity to comment on the Discussion Paper: Proposed changes to financial reporting for providers of residential aged care and home care. ACSA members are committed to promoting choice, wellness, wellbeing and quality of life for older Australians. As part of this, ACSA welcomes the opportunity to contribute to the Federal Government s Red Tape Reduction Agenda which will free up more time and funding for direct care. As the Department states: It is proposed that a Comprehensive Financial Report (CFR) consolidate and replace the current reporting requirements for residential and home care providers. In January 2014, the Assistant Minister for Social Services asked the Aged Care Financing Authority (ACFA) to provide advice on options to improve the collection of appropriate financial data from aged care providers, including options to rationalise financial reporting requirements. ACFA s comprehensive report, Improving the Collection of Financial Data from Aged Care Providers, was released in October 2014 and made a number of recommendations including consolidating and replacing the current financial reports and forming a design and implementation group to assist in the development of the CFR. The following feedback is a compilation of comments from aged care providers from across Australia. 3

4 GENERAL COMMENTS It is an admirable objective to reduce red tape and simplify the financial requirements for providers. Providers recognise that significant funds are allocated to the industry and representatives are prepared to work in true partnership with government to develop a clear framework which produces useful information, reduces red tape and duplication and results in a real reduction of administrative burden. Changes from the ACFA report There is a significant and frustrating disconnect between the initial ACFA report, Improving the collection of financial data from aged care providers and the recent DSS discussion paper and proposed reporting framework. The initial ACFA report clearly set out criteria around cost effectiveness and efficiency of report preparation by providers with the intent of reducing red tape; the intention was that the data reported would fulfil a purpose and duplication should be removed. The DSS framework will in fact result in increased red tape and administrative burden for providers. Burdensome and questionable data Under the framework the data collected would be inconsistent and of questionable reliability. The framework proposes facility-based reporting but facility-based data differs across the industry. In addition, reporting at the site level would be onerous for providers whose balance sheets are at the company level. The volume of information would be overwhelming and without proper analysis and commentary the detail would be of little value. The proposed level of detail to be reported would place a significant burden on providers. Some break-ups are not meaningful and not part of the current reporting structures (e.g. labour is not split into accommodation, care, and hotel services). The timelines for various reports all come together to create tight time constraints. Providers are doing four forms of report, all due at the same time: Management accounts; General Purpose statements; Benchmarking and DSS reports. These layers of reports are imposed on the same small number of staff. A 30 November due date for the first inaugural report, to allow providers to set up the reports, would ease pressure at a difficult time. While DSS is proposing changes to the reports to be submitted annually to DSS, all organisations still need to manage their businesses and prepare annual reports to satisfy their own prudential requirements. These reports and requirements do not change, so the CFR is still an additional burden. In an ideal world providers should be able to simply supply the annual audited financial reports. It seems that the feedback provided at the meeting convened by DSS in Melbourne during November 2014 has not been taken on board. This is disappointing. Head office costs A major area of clarification for the sector should be the allocation of head office costs. The report asks for income and expense data to be allocated to individual facilities with head office costs allocated to individual sites. Within this one item there is significant variation in what comprises corporate overhead, whether these costs are allocated to individual services and if they are allocated, the basis of such allocation. Perhaps a consolidated Statement of Income and Expenditure would be more useful here. Standard Business Reporting ACSA welcomes the decision to consult further before moving to Standard Business Reporting (SBR). ACSA supports the objectives of SBR but we recommend further consultation on the harmonised reporting definitions as they might apply in aged care before making that transition. Any changes to financial systems in order to meet a regulatory reporting requirement would generate considerable 4

5 work for businesses and, in most cases, would not change the way they manage their own reports and chart of accounts; it would simply create an additional layer of reporting. Removal of audit requirements It is useful to remove the requirement for the CFR to be audited as the proposal requires many discretionary and complex allocation decisions. Many providers will continue to meet their auditing and reporting requirements as imposed by their registration as a business. The CFRs are an information report, not a formal acquittal. The most that can be asked is an attestation of the information s accuracy. However, it may still be useful to seek an audited statement on the prudential matters. Explaining the rationale for the data collection There is general support for providing data and complete reports, provided that the purpose for the collecting that data and how it will be used is made clear. As it stands, the key purpose of the data collected under the framework is not clear. Nor is there any evidence that the proposed framework would actually reduce the red tape and reporting burden. It would be useful to see the reason for the collection of some of the data sets in order to justify the increased reporting burden. It would also be good to provide the data back to the sector in a de-identified way. Beyond scope In a number of instances the proposed framework requires providers to supply information that appears to go beyond the scope of the Aged Care Act or DSS monitoring. For example, the request for information on top-up fees paid by home care clients and information about the operation of independent living units is not warranted. These requests should be removed. Comprehensive reporting While these proposals provide combined reporting for residential care and Home Care Packages (HCP) it is not include reporting for other aged care programs, such as the future Commonwealth Home Support Programme services. Even though these are grant based services, they still need to be acquitted. Perhaps it would be more accurate to talk about comprehensive programs funded under the Aged Care Act. Flexibility applauded It is a good idea to allow providers to complete and submit CFRs online or in an Excel file that will be ed to DSS. The quality of internet connections in some rural and remote locations means that the option is necessary. Support with the transition Smaller providers do not have the more sophisticated financial system than will be needed to extract the data for these reports. Additional funding should be made available to help them move into these more elaborate systems. We appreciate the Department s efforts in working with software providers to help them adjust their systems to provide the new reports in a timely manner. When will the software providers have their software able to export the data in the format required to an Excel spreadsheet? 5

6 Alternative suggestions 1. Conduct a separate analysis by an independent firm to seek the detailed information to provide those insights. The data on the 63 per cent of stand-alone operations would be available, so the study would only need to work with the 37 per cent who have multiple sites. The study could be repeated to collect trends, if the insights were valuable enough to warrant government expenditure on collecting the information. It would be ideal if the statement of cash flow was in line with the GPFR as well. 2. Rather than collecting inaccurate and inconsistent annual data at a facility level, DSS could commission an independent firm to conduct a separate periodic analysis to seek accurate and consistent information to provide those insights. If the insights were valuable enough to warrant government expenditure, the study could be repeated to collect trends. 3. One Financial Officer would like to propose an alternate reporting format (see below). The majority of providers will be required to prepare audited financial reports (either for the ACNC, ASIC or at the Boards request). Rather than preparing a separate financial report, providers could instead use an enhanced segment note in the audited financial reports with the column headings of Residential, Home Care Packages, Home Support Services and Other, with specifications for income and expense items to be included as row items (See example below). In conjunction with this, the APCS and SACH forms could be merged (as per CFR3) and include an attestation from the provider along with this merged form. This new form, along with the Audited Financial reports, would be lodged to satisfy DSS sreporting requirements. DSS could commission an independent firm to conduct a separate analysis to seek more detailed financial information from a proportion of Providers across the industry to provide further insight into the financial well-being of the industry. 6

7 COMMENTS FROM HOME CARE PROVIDERS: CFR 1 CFR 1 would be completed by providers who deliver home care (and possibly other services), but not residential care. This is the simplest report, and is very similar to the FAR currently used by home care providers, but with some proposed changes to reflect the introduction of Consumer Directed Care. The following comments have been collated from ACSA members around Australia: Home care providers are still struggling to make changes to their financial systems in order to support consumer directed care (CDC). This additional change may be required too quickly and at too great a cost. Smaller providers feel it is premature to be requiring a consolidated report on CDC client statements when they are still in the process of implementing new systems and working their way around new requirements. In the description of client fees there is an item for additional fees top up fees for home care services purchased in addition to those funded with packaged funding and in other revenue it includes client payments for non home care services. It is unclear why DSS wants to monitor this. Many providers would have a separate agreement with clients for these services so it is clear what is funded and what is private and what they charge is up to them. The funds may even be in another cost centre as a private service. This should be removed. The new format is unclear on where providers are to retain a surplus from HCP. The HCP Guidelines allow for providers to retain unspent funds when: a consumer dies; a consumer moves to another provider (for use in supporting other consumers); or for infrastructure. In the proposed format, everything seems to be carried forward. This needs to be adjusted. Some providers hold funds on the balance sheets to meet the liability of unspent funds and contingency, but do not hold this against individual clients at this level. Some report that they bring the subsidy and fees into their Profit and Loss Statement and then journal the unspent portion to the Balance Sheet not the other way as described in the discussion paper. It will be onerous for some providers to collect items from the balance sheet. The principle of who controls the funds influences how they are reported in not-for-profit organisations and may lead some to not record a liability for client subsidies that are not yet expended. In a for-profit accounting treatment the matching of revenue and expenses would stand and all revenue held would be listed as a liability. This second approach is the most common in use by larger organisations. Clarity of the required approach is needed. Many HCP providers have reported that they do not have their accounts set up in the proposed format. The majority of smaller providers are still using spreadsheets and doing things manually or have case management software which isn t integrated with their finance systems because there aren t a lot out there and what is available is expensive. Reporting of income should be restricted to government subsidy and client contribution. Reporting of expenses along the lines of administration, case management and service fees is the appropriate way to gather this information. The format of CFR 1 would require a provider to gather information from a number of separate sources. The inclusion of financial data that can be obtained from the audited income and expenditure statement is easily achievable and not dissimilar to the current FAR requirements. However, the additional information needed to be obtained, including surplus package funds, will be more difficult to obtain and means additional accounting resources will need to be applied to complete this information. The information required to be collected from the consolidated client statements will be able to be collected once the 7

8 accounting systems are configured to allow for the provision of CDC packages from 1 July It is however an additional task. The CFR will certainly require more resources to be engaged for completion in comparison with the FAR in use at the moment. However, the challenges for a home care provider in configuring their finance system to accommodate the accounting treatment of CDC packages will be greater. Once providers have completed those more challenging configurations and set them up to support the CFR, the completion of the CFR may be a little less timeconsuming. The columns or service level on the spreadsheet need to reflect the management structure. These headings are critical to our ability to provide meaningful data. The data should reflect the way the provider manages their business, while also supporting decision making and policy formation. Given that new CDC allocations reflect a mix of packages, reporting columns should be grouped by package level within geographic region. To mix package types within a column or service level is like adding apples and oranges and pears it will be nonsensical. Instead of Other Revenue it should be Other Operating Income. Consider adding an expense item to cover travel costs both time and mileage. This is especially important for rural providers. Under home care expenses, the definition needs to be expanded to take into account what clients may request such as home modifications or trips to family member s weddings etc. One member raised the matter about the collection level of the data eg service level, colocated, regional etc. A member raised the matter about the income i.e. not based on the 3 but subsidy and supplements, client contribution and ITF. The requirement to disclose HCP income by fee income and surplus package funds separately will not be possible when CDC comes into place. As noted in the discussion paper providers will be recording the subsidy and client contributions as a liability to be recognised as income as service is provided. Providers would be able to distinguish the break-up of the surplus funds brought to income between subsidy and client contribution. We believe the format of the Home Care Statement of Income and Expenditure needs to be amended to only disclose transfer of surplus funds. 8

9 COMMENTS FROM RESIDENTIAL CARE ONLY PROVIDERS: CFR 2 CFR 2 would be completed by providers who only deliver residential care. This includes a statement of income and expenses to be completed for each residential aged care service, with a statement of financial position (or balance sheet ) completed for the approved provider as a whole. This would also include the cash flow and prudential items currently captured in the APCS, and the questions about building activity from the SACH. The following comments have been collated from ACSA members around Australia: It is good that DSS are not asking for balance sheet reporting at a facility level. Reporting at a service or facility level is not acceptable unless the service is a single facility provider, as is the case for the majority. We remain concerned that while the proposal suggests that the 37 per cent of service providers which operate more than one facility can use some form of notional allocations, these are arbitrary and require considerable judgement and discretion. There would be no basis for these allocations to be used for comparison purposes. Reporting at that level is complicated, misleading and an artificial construct that is not useful to government or the provider. A general principle of data collection is to ensure the data source values the data and has a use for it as well; failing to meet that principle rapidly raises the risk of inaccurate and inconsistent reporting. We do not support data collection at the facility level. As one provider observed: Reporting as a segmented balance sheet for residential care would be arbitrary and time-consuming and not provide any insights into the financial position of the residential segment the nature of the balance sheet is as a consolidated report that details pooled assets and liabilities and the general health of the organisation to segment this report would provide little meaningful data. Rather than facility ID, the report should reflect the management level, particularly when the facility is co-located. The subsidy income figure should be one line and could even be pre-populated by the government. Interest income - will come from the financial institutions. It is not monitored and managed as separate reporting lines under interest as per proposal in the spreadsheet and should be retained as interest. This CFR will not be a report used by providers to manage their businesses. It will be created from the providers financial system as an additional report. It does not remove any red tape and it increases complexity. Several of the details requested in some of the rows seem to be more detailed than what government requires. It is not clear why they are being requested. As was reported in the DSS workshop, allocating facility income and expenses to the care, accommodation, and hotel categories is done by some providers but not others. Part of the challenge is that the methodology varies leading to inconsistencies which will be misleading. The splits across income lines in particular will create problems. Many providers do not manage their services in that way and this data split will be an artificial construct and significant burden for them. Could an independent third party collect the data and make the allocation on a consistent basis? Performance by the service is captured by many organisations, however in a different format to that used in the discussion paper a move to reporting for individual services would require significant workload to remap current formats. 9

10 Where a larger provider already produces financial information for a GPFR, they should be allowed to use this information rather than producing another version of the same thing. The property report will need to have some definitions around the different categories to ensure consistency. For example, does the cost relate to construction cost only or total development cost? Prudential Standards. This is the same as what has been used to date, just in a different format. This document will need explanatory notes. Within this section: a. Why is DSS asking for Total amount deducted from all RADs, Bonds & Entry Contributions balances in the year (This is all the deductions) and Total amount deducted from RADs, Bonds & Entry Contributions received in the year (deductions for that year only)? b. In the current year there would only be RADs as bonds finished on 30 June and Entry Contributions, which referred to entry into hostels only up to 1 October 1997 when the Aged Care Act was introduced. c. The Compliance page needs to clarify what is meant by Increase (decrease) between July & June in deposits with ADIs as defined (this is the 3 rd item under the heading Expenditure during the financial year on uses ). Some say it is just the movement in the cash management account when RADs etc. are deposited, while others say it is the movement in all bank accounts or something in between.. The definition needs clarification. In the past, the base subsidy and applicable supplements (all bar those relating to accommodation) were for care, the daily resident care fee was for hotel services and accommodation charge, DAPs, income (interest) from bonds and RADs as well as the accommodation supplement, including the concessional supplement were for accommodation and by some providers treated as capital (non-operating) income. There is a different issue in regard to income, especially splitting the subsidy, supplements and resident fees between care, accommodation and hotel services. It is difficult (time consuming) to split the income from the page in the Medicare payment statement. Mirus suggested that Medicare could tailor their report to easily provide this split up. How long will this take? Some of the supplements in the definition of care income no longer apply e.g. the, payroll tax and workforce and some could cover more than care e.g. hardship could cover care, hotel services and accommodation. Under Care income change Resident Fees to Means Tested Fees. Under accommodation income: o o o In resident fees maybe in the parentheses instead of saying excluding extra service fees it could say DAPs & Accommodation Charges Extra service fees is made up of accommodation, services and food, so maybe the income maybe should be split between accommodation & hotel services. This is easier said than done. Transfer Capital Grants to non-operating income. Under Hotel Services Income change Resident Fees to Additional Resident Fees. Under Other Income add another income item called Other Income This could be used for such miscellaneous income such as income from insurance claims. 10

11 Expenses seemed to be okay although there were a couple of comments: one was showing Agency Costs as a separate line item; and the other was Revaluation of Assets and Loss on Sale of Asset this should just be included under Other Income Revaluation of Assets. Statement of Financial Position (Balance Sheet) Residential Aged Care. There were only a couple of comments: o Why is there Work in Progress under Current Assets? o o o Should there be a heading for Issued Capital? Is it getting back to the old CAM (Care Aggregated Module) where funds were provided to pay for the nursing and personal care or residents, and SAM (Standard Aggregated Module) which was the funding for non-nursing care costs such as food, administration and building maintenance. Is this access to greater information for purposes of curtailing funding? Is this information wanted for benchmarking for future predictions and planning? Will it be used for future predictions and potential cuts? The changes to the reporting formats are welcomed overall. The consolidation of the Financial reports and Annual Prudential Compliance Statements and the Survey of Aged Care Homes is a welcome change. Whilst the need of audited financial statements might benefit some providers, large incorporated entities would still need to have their annual accounts audited by an independent auditor. 11

12 COMMENTS FROM PROVIDERS OF RESIDENTIAL CARE AND OTHER SERVICES: CFR 3 CFR 3 would be completed by those providers who deliver residential care and other services, which may include home care and/or another aged care or non-aged care related business (for example, independent living units). CFR 3 would include a statement of income and expenses completed for each residential service and each home care service (if applicable) and for the approved provider as a whole. This would also include a statement of financial position (or balance sheet ) for the residential segment (the overall residential aged care part of the business) and for the approved provider as a whole. CFR 3 would also include the cash flow and prudential items currently captured in the APCS, and the questions about building activity from the SACH. The following comments have been collated from ACSA members around Australia: In the Cash Flow Statement, under Financing Cash Flows the Accommodations Bonds/RADs received and Accommodation Bonds/RADs/Entry Contributions refunded should be changed to Movement in Accommodation Bonds/RADs/Entry Contributions. The Compliance Statement in the Prudential Standards Approved Provider (including Attachment 1) is basically the same as what has been used to date, just in a different format. This document would be improved with explanatory notes. Why is DSS asking for Total amount deducted from all RADs, Bonds & Entry Contributions balances in the year (This is all the deductions) and Total amount deducted from RADs, Bonds & Entry Contributions received in the year (deductions for that year only)? In the current year, there would only be RADs, Bonds finished on 30 June and Entry Contributions, which referred to entry into hostels only up to 1 October 1997 when the Aged Care Act was introduced. In the Compliance section it would be useful to clarify what is meant by Increase (decrease) between July and June in deposits with ADIs as defined (this is the 3rd item under the heading Expenditure during the financial year on uses ). Some say it is just the movement in the cash management account where RADs etc. are deposited, while others say it is the movement in all bank accounts or something in between. The definition needs clarification. The requirement to provide a Statement of Financial Position for Residential Aged Care will be impossible for many entities that provide several different services. They can track the Fixed assets, RADS/Bonds, trade debtors by residential aged care. All other assets and liabilities are not tracked by service level. Any attempt to produce a Statement of Financial Position for Residential Aged Care would involve estimations and would not give a true and fair view. Combining the reports is really no change. What is different is the detail of information required. Overall it looks as though Government is allowing market forces to work and this is fine however it is recognised that these data give the government more detailed financial information. While it may be seen as less red tape, it is clearly more control. However, it is recognised that Government does award the funding so entitled to ask for a report. So what are the benefits to the Provider? Providers are subject to more transparency into the future and potentially less control. For example, Government will want to dictate where and what to spend money on. How much money is being spent for example on wages as opposed to equipment? Why do organisations have to prepare a report for each ID number? Could it not be presented from an organisation perspective? 12

13 Overarching Question: What really is the purpose of this new more detailed way of reporting? How is this collection of appropriate financial data from aged care providers really going to be used? What are the real and future consequences for the Provider? HACC The inclusion of HACC acquittals into the CFR would be beneficial, particularly if in a similar format to the Statement of Income and Expenses for Home Care Services. Statement of Income and Expenses by Residential Aged Care Service this Statement is substantially more detailed than the current segment note required in the GPFR, and I question why this level of detail is required from the perspective of the substantially expanded number of revenue and expense items and having to report at a service level which is not currently required. Without the definitions (which are being provided at the workshop) it is difficult to determine how much time will be consumed to populate the Statement in this level of detail. It is not clear why the Statement of Financial Position for Residential Aged Care requests so many asset and liability categories which far exceed the segment note requirements of the GPFR. Equity breakdown is generally reported at an organisational level, not at segment level. The Statement of Income and Expenses for Approved Provider and Statement of Financial Position for Approved Provider are not difficult to pull from current GPFR. The Cash Flow Statement for Approved Provider has more detailed requirements than the GPFR and it is not clear why this greater level of detail is necessary. The Prudential Standards AP and Prudential RADs Held AP cover most of the items in the current Annual Prudential Compliance Statement, however, they do not include Accommodation Bonds which will still be held by providers at the end of Compliance with Permitted Uses for RAD Payments Good extraction of required information from current Prudential Compliance Statement. Incorporating all reporting requirements into one CFR would streamline the current process. However the development of a CFR would not replace the GPFR or eliminate the need for many providers to develop a GPFR, which is required to meet other obligations including the ACNC, WorkCover Self Insurance, banking and other purposes. If the draft form of the CFR 3 goes ahead there should be an N/A column on the page headed Prudential Standards Approved Provider at the last entry on that page titled Refund of entry contribution balances to account for pre 2000 circumstances where a yes or no response would not be correct. Is financial reconciliation necessary for HC providers only? For those required to complete CFR 3 maybe. A member who operates residential care, home care and a retirement village will need to complete CFR 3 which will be a lot more work for little return. Some organisations do not have a separate value of the assets applicable to each component of their business. Will they be expected to get a valuation to split the value of their assets? 13