Liquidity standard aims to improve viability
The new Financial and Prudential Standards include a minimum liquidity measurement, category 4 and 5 home care providers and enhanced financial reporting and risk management.
On 18 February the Aged Care Quality and Safety Commission launched a public consultation on the draft Financial and Prudential Standards. Aged Care Quality and Safety Commissioner Liz Hefren-Webb hosted a webinar on the new standards the same day.
One of the recommendations from the Royal Commission into Aged Care Quality and Safety was to introduce enforceable liquidity requirements, which makes up one of three updated and focused introductions to the new standards.
In a post on the ACQSC website, the commission’s acting deputy commissioner in the regulatory operations division Peter Edwards defined the minimum liquidity standard as:
- a whole dollar calculation specific to an organisation’s financial circumstances
- re-calculated quarterly as part of your Quarterly Financial Report
- encouraging of regular tracking of liquidity needs
It is now necessary for all approved providers of residential aged care to meet the liquidity standard and it will require providers to:
- be able to repay refundable deposits due in the next 12 months
- start, maintain and document a written liquidity management strategy.
A provider’s LMS must specify:
- the minimum level of liquidity – in whole dollars – to be able to repay refundable deposits when they’re due
- the factors considered in choosing this level
- what format this level of liquidity will be maintained in
Mr Edwards said the ACQSC worked with an actuarial firm to set the minimum liquidity amount, with the key considerations to ensure it creates enough buffer to help providers manage problems caused by short-term cashflow issues and ensure providers can continue capital investment in the sector.
He also noted that if a provider is unable to meet the minimum liquidity amount, the ACQSC’s viability monitoring team will give them the necessary guidance and support. If a provider demonstrates a lack of commitment to managing their liquidity risk the ACQSC will use regulatory powers to take compliance action.
A liquidity calculator can be accessed here.
A fact sheet on the liquidity requirements can be found here.
The new Financial and Prudential Standards guidance for providers can be found here.
Other changes outlined in the new standards include home care service providers in categories 4 and 5 needing to comply with the standards – excluding the liquidity or investment standard – and enhanced financial reporting and risk management to improve transparency and governance practices.
Feedback on the draft Financial and Prudential Standards can be done via a survey, which has been extended to 5pm AEDT Friday 14 March. Or, a written submission can be sent to New_FP_Standards@agedcarequality.gov.au.
Watch the webinar recording here:
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