Aged Care directors need to maintain strong governance during these difficult times

The State and Federal Governments have been consistent in their support and contribution towards the health and safety of our most vulnerable Australians – the elderly.

In addition to funding for hospitals and protective equipment, the Prime Minster Scott Morrison also recently announced specific funding aimed at aged care facilities and services including:

• $234.9m for a retention bonus for staff in both residential and home care.
• $78.3m in additional funding for residential care to support continuity of workforce supply.
• $26.9m to supplement the viability of residential aged care facilities.
• $92m in additional support for home care providers and organisation which deliver the Commonwealth home support program, including services like Meals on Wheels.
• $12.3m to support the aged care sector respond to the needs of older Australians.

For a sector that was experiencing significant financial distress prior to the COVID-19 pandemic, the relief is welcome, although more is required, as well as more clarity about how to access the announced support. In addition to this, aged care facilities are experiencing issues around supply chain and workforce. For instance, if a facility has a positive case of COVID-19 and staff either are required or choose to self-isolate, how does the facility ensure quality and safe care for their residents? There is an expectation by providers that the Commonwealth and State will make qualified staff available to cover shortages, however, it does not appear that formal processes have been established, nor is access to staff guaranteed.

Demonstrating good governance in a time of crisis

With many providers already facing an uncertain future, and increased requirements to meet the needs of the older Australians in their care, the aged care sector continues to face many challenges. Welcome announcements on relief from prosecution for insolvent trading and increased time to address statutory demands will give many Boards confidence to trade through the COVID-19 business impacts. However, directors need to beware. This six-month relief does not constitute a ‘get out of jail free’ card. Boards and directors must consider how their actions may be seen when reviewed with 20/20 hindsight in one to two years?

During this temporary period, Boards must adequately address their directors’ duties. For instance, if a company is insolvent, it doesn’t absolve a director of taking necessary action to deal with the issues that caused it. If this creates uncertainty, Boards should still consider the protection offered by Safe Harbour as advised by an appropriately qualified Restructuring advisor. For instance, Grant Thornton is a member of both restructuring peak bodies, ARITA and TMA.

Boards should be proactive at regularly assessing their business during this time. We strongly recommend:

• An independent review of your immediate cash flow requirements.
• Development of BAU verses COVID-19 cash flow comparison to clearly demonstrate the impacts of the pandemic on what was reasonably expected over the forecast period, without its impacts.
• Appropriate forecasting should inform the development of a clear action plan to address and minimise the financial impacts that your business experiences as a result of the COVID-19 pandemic.
• A clear and decisive stakeholder communication plan to lenders, regulators, suppliers and shareholders.
• Undertake regular reviews of the cash flows and COVID-19 plans throughout the period of the pandemic impact and until BAU is restored in full.

We believe these steps are the minimum required of Boards and Executive teams to demonstrate good governance processes that will meet future scrutiny once the pandemic has passed.  For further information contact our specialist aged care response team led by National Head of Health and Aged Care Darrell Price and aged care industry response Financial Advisory Partner Phil Campbell-Wilson.