Australia: NSW Aged Care & Retirement Villages Update

Last Updated: 6 July 2006


  • Minister announces random inspections of aged care homes
  • Accommodation bond changes passed by Parliament

Minister Announces Random Inspections Of Aged Care Homes

Aged care homes will be subject to unannounced inspections, and approved providers will be required to conduct criminal background checks on all employees, following reforms announced on 10 April 2006 by the Federal Minister for Ageing, Senator Santo Santoro.

The reforms are designed to prevent abuse of the elderly in Australian aged care facilities and come hot on the heels of recent media attention on the topic.

Spot inspections

Currently, aged care providers are subject to regular and ongoing support inspections by officers of the Aged Care Standards and Accreditation Agency. Generally a provider is given notice of inspections and is entitled to challenge the use of unannounced visits unless there are reasonable grounds to believe that there is a serious risk to the safety, health or well-being of a person receiving care at the home.

Under the reforms, providers will be given no notice of "spot checks" by the agency, which will be focused on resident care and security standards.

Nursing homes are currently visited by the agency an average of 1.2 times a year. The minister’s comment that "every aged care facility in the country can expect more frequent spot checks" suggests this figure will increase.

The new inspection measures will be rolled out over coming months.

Background checks

Employers will also be required, at the employer’s cost, to carry out police background checks on all employees.

Any person with previous convictions for sexual, indecent or serious assault against a vulnerable person will be banned from working in aged care homes.

Further changes
The minister also met with state aged care ministers to finalise proposals for further changes including:

  • mandatory reporting of abuse allegations;
  • increased powers for the Aged Care Complaints Resolution Scheme to investigate and provide results for residents who make complaints against aged care homes; and
  • better protection for whistleblowers who report incidents of abuse or mistreatment of residents.

Impact on approved providers

The reforms mean that it will be imperative for providers to implement systems to monitor consistent compliance with the Aged Care Act and accreditation standards. It is also likely the review will cause operators to consider whether they will need to challenge unannounced visits as unfounded.

The increased frequency of visits also means that providers will be required to devote more time and resources to these matters.
By Arthur Koumoukelis and Georgina King, Sydney.

Accommodation Bond Changes Passed By Parliament

With the current level of bond holdings around Australia standing at $4.3 bn, the Federal Government has recognised the need for increased protection of accommodation bond refunds for the elderly, with amendments to the Aged Care Act passed on 28 March.

The amendments, which commence on a date to be announced, oblige aged care providers with accommodation bond holdings to comply with new prudential requirements governing accommodation bond payments.

The purpose of the changes is to strengthen protection for those entitled to receive an accommodation bond refund from care providers by:

  • enhancing prudential regulatory requirements for providers; and
  • guaranteeing repayment of bond balances to residents in the event that an approved provider is unable to make repayment.

Providers may be required to pay a levy to cover the cost of the guarantee scheme, however the main impact is going to be the heavier corporate governance and fiduciary obligations providers must meet.

Gadens Lawyers’ September and December 2005 updates

The major changes are outlined below, however further details of the new scheme were discussed in our September and December 2005 updates, which can be viewed at this link:

September 2005 update

December 2005 update

Government guarantee and recovery from providers

Guarantee and recovery process
When a provider defaults on payment of a bond balance, the following will occur:

  1. The Government will make a refund declaration and pay the bond balance plus any interest owed to the person entitled to the payment (usually the resident or their estate) within 14 days of making the declaration;
  2. Any rights the resident had as against the provider will be transferred to the Government; and
  3. The Government will pursue the defaulting provider for the amounts paid.


A levy may be imposed on aged care providers to the extent necessary to recover bond balance refunds and any other costs the Government incurs in recovering payments.

The magnitude of the levy on approved providers will be determined by:

  • the value of all outstanding bond balances, including interest, that are paid by the Government;
  • amounts that can be covered from the defaulting provider; and
  • the costs of administration.

Prudential Regulation

The new standards

The Government may now amend the User Rights Principles to set out prudential standards for:

  • protection of accommodation bond and entry contribution balances;
  • sound financial management of providers; and
  • provision of information about the financial management of providers.

The legislation gives the following examples of matters the new prudential standards may deal with for approved providers:

  • corporate governance;
  • financial reporting;
  • liquidity;
  • capital;
  • insurance;
  • information retention and provision.

Funding for new regulatory framework

The Government has allocated funding for implementation of the new guarantee scheme and prudential regulatory system over the first three years of operation. After three years, arrangements will be put in place for costs to be covered by approved providers that hold bonds.

Other changes

The new laws will also bring into effect the changes referred to in our earlier updates regarding the following:

  • interest on bond refunds;
  • timeframes for refund of the bond balance; and
  • extension of accommodation bond legislative provisions to flexible care bonds and entry contributions.

Effects of the new legislation on providers and lenders

The changes could have the following effects on operators and lenders:

  • The Government’s right to reclaim money from the defaulting operator and/or its directors places a greater onus on company directors and officers to ensure they understand the solvency of their companies and to seek advice when solvency becomes an issue.
  • The Government’s right to recover may have a bearing upon lenders’ willingness to lend to marginal operators and will influence credit issues.
  • In terms of the ability to invest and use accommodation bonds, the details of the new regulatory framework will depend on the form of prudential standards created under the new laws. However, the background information provided by the Government indicates the reforms are directed at adequate reporting and planning by providers rather than on limiting use of bond funds for the development and financial viability of care services. Clearly, the role of auditors, independent financial analysts and cash flow reporting will increase. So will the demands of officers of these entities to understand their financial impact reports.
  • There should be no cost to industry associated with the guarantee scheme unless a provider becomes bankrupt or insolvent and the Government has to pay outstanding bond balances.

Further changes in the future

The Government’s power to create new prudential standards is quite broad. In introducing the legislation the Government has stated that the information gained through the initial prudential requirements will enable it to analyse the overall risks and to assess the need for further strengthening of prudential requirements.

However, the Government has expressed its commitment to take into account the likely impact of any proposed regulation on both residents and providers.
By Arthur Koumoukelis and Georgina King, Sydney.



Arthur Koumoukelis

t (02) 9931 4873


Georgina King

t (02) 9931 4943


This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.

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