The objective of the audit was to assess the effectiveness of the Department of Veterans’ Affairs’ administration of residential care payments.

Summary

Introduction

1. Each year over one million older people receive some form of government funded aged care in Australia1, with more than 27 000 Department of Veterans’ Affairs (DVA) clients residing in Australian Government funded residential care facilities in June 2013.

2. The Australian Government provided more than $9 billion in funding to residential care facilities, including approximately $1.4 billion in residential care subsidies for DVA clients in 2012–13.2 The residents of aged care facilities are subject to asset and income tests to determine their eligibility to receive government subsidies towards the cost of their care.3 Most residents pay some fees based on their income—including full and some part-pensioners4 who pay a basic fee—and an accommodation charge or bond if a resident is assessed as having the capacity to pay. For their part, approved providers have to meet accreditation standards to receive government subsidies on behalf of eligible residents.

3. Australian Government agencies involved in the delivery of residential aged care (residential care) services include the Department of Social Services (DSS)5, the Department of Human Services (Human Services) and DVA. Formal agreements are in place between the departments to support the efficient and timely delivery of residential care services.6

Veterans’ Affairs administration of residential care payments

4. DVA administers the Australian Government’s residential care subsidy, via a special appropriation, for its eligible clients; people who have an entitlement under the Veterans’ Entitlement Act 1988 (the VEA) and other legislation administered by DVA. Under the Aged Care Act 19977 (the Aged Care Act), DVA conducts aged care assessments (ACAs) and income testing to assess the net value of their assets based on their pension assessment and to determine the daily fees a client will be required to pay.

5. Data relating to a resident’s total net asset amount, aged care resident status determination and total assessable income is exchanged between DVA and Human Services, enabling Human Services to calculate the maximum residential care costs payable by clients and to make payments to approved providers on behalf of eligible residents. The quality of the data exchanged by DVA is critical to the accuracy of residential care payments and whether those payments are made from the correct agency appropriation.

Audit objective and high-level criteria

6. The objective of the audit was to assess the effectiveness of DVA’s administration of residential care payments.

7. To assist in evaluating DVA’s performance in terms of the audit objective, the ANAO developed the following high level criteria:

  • DVA has an effective governance framework;
  • DVA’s service delivery objectives are clear, well-designed and well‑managed; and
  • DVA’s systems to monitor and report the accuracy of residential care payments and performance are effective.

Overall conclusion

8. The Department of Veterans’ Affairs (DVA) provided approximately $1.6 billion in residential care subsidies for around 27 000 DVA clients in 2012–13, as part of a wider Australian Government program providing more than $9 billion in funding to residential aged care facilities8 in 2012–13, under the provisions of the Aged Care Act. DVA identifies its individual clients in residential care through an exchange of data with Human Services; and payments are made to approved providers on behalf of eligible DVA clients, based on the data exchanged between DVA and Human Services.

9. The audit highlighted that DVA’s administration of residential care payments has not been fully effective, due to: shortcomings for over six years in the department’s ability to accurately identify eligible DVA clients in residential care, resulting in incorrect and unauthorised payments to approved providers9; and the absence over the past two years of legal delegations necessary for DVA officials to validly exercise powers and perform decision‑making functions under the Aged Care Act. Further, the department has missed opportunities to mitigate these program risks through its internal risk management processes and procedural controls. While payment errors can be resolved through adjustment or recovery processes, these can be complex and introduce additional transaction costs for agencies and stakeholders.

10. Known weaknesses in the integrity of DVA’s data and exchange processing has affected the department’s ability to correctly identify its eligible clients, resulting in DVA exchanging incorrect client data with Human Services for more than six years. As a consequence, responsibility for the payment of residential care costs has often been assigned to the wrong agency, resulting in payments being made from the wrong appropriation. In 2012, DVA identified that it had incorrectly funded the residential care costs of 1130 ineligible residents in 2010–11, necessitating an adjustment to DVA financial records of $39 million to account for the overpayments. In 2013, DVA identified 770 instances where it had incorrectly identified clients as eligible and provided funding for their care, resulting in overpayments of $35.8 million.10 While DVA has advised that the root cause of the incorrect payments was addressed in September 2013 by changing a key data processing rule in its systems11, recent internal testing of its residential care subsidy recipient data indicates that further overpayments are forecast for 2013–14.12

11. To help DVA address data integrity issues, Human Services has, since July 2012, provided DVA with a quarterly listing of all relevant records to enable DVA to correctly identify its eligible clients. By March 2014 however, DVA had only fully investigated the data in the first report provided by Human Services and subsequent reports had not been actioned. The slow progress in addressing the backlog of incorrect records to identify ineligible payments requires review by the department. Going forward, to provide assurance on the integrity of relevant client data and the administration of residential care payments, DVA should establish quality and timeliness standards for its management of information used as part of the data exchange process.

12. As mentioned previously, DVA has been aware for over six years of limitations in its ability to correctly identify eligible DVA clients. However, the relevant DVA business‑level plans examined by the ANAO indicated that the plans did not identify, assess, or document treatments for these known risks, raising questions about the department’s ongoing monitoring of program risks, and any changes in the severity of the risks.13 A further program risk arising in recent years has been the absence of sub‑delegations between 17 November 2011 and 14 October 2013, to enable DVA officials to validly exercise the Secretary’s powers and decision-making functions under the Aged Care Act. An effective risk management process would have identified and treated risks relating to the program’s delegation structure as a matter of course. In this light, DVA should review its approach to identifying and treating business-level risks in the context of the department’s Risk Management Framework. To facilitate the effective ongoing management of delegations and to provide additional assurance that DVA officials have validly-made delegations for the exercise of statutory powers, the department should also maintain a central delegations register.

13. As part of its administration of residential care payments, DVA has developed internal guidance and procedures to support the consistent collection and use of client information for aged care assessment decisions and to accurately calculate payments. However, these measures have not been fully effective and the ANAO identified instances of decision-making based on incomplete, poorly documented and/or out-of-date information. At present, eligibility decisions can be based on client asset and income information that may be up to three years old14; in contrast to arrangements for DVA pension assessments, which require clients to advise DVA within 14 days if they gain or dispose of any assets. To improve compliance with the Aged Care Act, and the quality of its decision‑making, DVA should use up-to-date client information and consistently document its decisions, including client information that informs these decisions.

14. The ANAO has made four recommendations aimed at improving the department’s administration of residential care payments, focusing on: improving the management and integrity of information used as part of the data exchange process; establishing a central delegations register to improve the management of internal delegations; enhancing risk-management processes; and improving compliance with the Aged Care Act and the quality of decision‑making by using up-to-date client information and consistently documenting decisions.

Key findings by chapter

Asset Testing and Income Assessments (Chapter 2)

15. Under the Aged Care Act and related subsidy principles, DVA officials can be provided with delegated authority to collect and assess information on clients seeking financial subsidies towards the cost of their aged care. DVA did not have relevant sub-delegations in place for decision-makers for two years. To provide assurance regarding the management of delegations, and to avoid legal risks such as challenges to decision‑making, the department should maintain a central delegations register to facilitate the management of delegations. Such an approach is commonly adopted by departments.

16. Client information for residential care purposes is mainly captured through ACA applications by DVA staff, and following assessment, information regarding a client’s total net asset amount, aged care resident status determination outcome and total assessable income amount is provided to Human Services as part of a regular data exchange process. In its present form, the ACA application often results in DVA receiving inconsistent and incomplete information from clients, resulting in delays in the assessment process. The current review of the ACA form by DVA and DSS provides an opportunity to address these matters and reduce the risk of ambiguity for applicants. In its response to the audit of 28 May 2014, DSS acknowledged that current administrative difficulties as they relate to the capture of client information could be addressed in part by improvements to the ACA application form, which is being amended as part of the implementation of the 1 July 2014 Aged Care Reform measures.

Integrity of Residential Care Data (Chapter 3)

17. To reduce the risk of paying government subsidies for non-DVA clients and to facilitate the accurate exchange of information with other agencies, DVA has provided guidance to staff and implemented a range of system controls, procedures and reporting arrangements.

18. To manage data mismatches and errors, DVA has implemented a number of strategies, including Aged Care reports which identify, assess and correct data discrepancies. Departmental procedures require all Aged Care reports to be investigated and if discrepancies are confirmed, DVA systems must be updated. The ANAO reviewed a targeted sample of 51 cases in the reports and examined the related pension and aged care case information in DVA systems.15 The ANAO identified incorrect data matches between Human Services data and DVA records, indicating that the wrong client information had been exchanged and DVA was paying residential care subsidies for residents with no entitlement under the VEA.16 Data exchange errors can result in unauthorised payments being made from DVA’s special appropriation or provider fee adjustments, requiring complex and drawn out processes to resolve.

19. Since July 2012, Human Services has provided DVA with a quarterly listing of residents with liability accepted by DVA, to enable the department to identify and confirm its aged care residents with an entitlement to DVA funding. By March 2014 however, DVA had only fully followed‑up on the first quarterly report for 2012–13, and subsequent reports provided by Human Services had not been actioned by DVA.17

20. DVA’s acceptance for funding the payment of government subsidies for residents with no entitlement under the VEA has resulted in significant payment errors and payments drawn down from the wrong appropriation, for more than six years.

Governance, Reporting and Review (Chapter 4)

21. The ANAO examined the 2011–12 and 2012–13 business plans for two key business areas with responsibility for the administration of residential aged care payments. Business plans did not identify known risks relating to mismatches of client information in the data exchange process with Human Services, notwithstanding their frequency or the quantum of the incorrect payments each year; raising questions about the department’s ongoing reporting and monitoring of known risks at the business-level.18 During the audit, DVA developed a risk assessment for the administration of residential care payments. However, many of the risk treatments identified are either not applied consistently by the department, or are not effective in addressing the risks.

22. The ANAO also reviewed the formal agreements between DVA and other government stakeholders. In particular, the Agreement between DVA and the former Department of Health and Ageing (DoHA19) that governs aged care administration, which includes business processes and performance reporting for the exchange of aged care data, and financial responsibilities and accountabilities agreed between the parties. The Agreement has not been fully effective in facilitating the management of data errors or resolving funding liability issues20 in a timely manner, resulting in government stakeholders expending considerable resources to resolve the issues over more than six years. There is a need for greater senior management oversight of the agreement’s operation and the ongoing efforts to resolve DVA’s data integrity issues relating to the identification of residential care clients and related payments.21

23. There would be benefit in DVA investigating options with other government stakeholders, to streamline the current administration of the residential care program in order to reduce the potential for double handling and inefficiencies in respect of administering residential care payments.

Summary of agencies responses

24. Summary responses to the proposed audit report are provided below. Full responses are at Appendix 1.

Department of Veterans’ Affairs

The Department of Veterans’ Affairs notes the findings of the report and agrees with all recommendations suggested by the Australian National Audit Office.

Department of Human Services

The Department of Human Services welcomes this report which notes the work the department undertakes with the Department of Veterans’ Affairs (DVA) to support DVA’s role under the Australian Government’s Residential Care Programme.

The department will continue to work closely with DVA to support the provision of accurate and timely residential care payments for eligible veterans and their families.

Department of Social Services

DSS welcomes the findings of the audit report on the Department of Veterans’ Affairs Administration of Residential Care Programs and considers that the implementation of its recommendations will enhance the integrity, delivery and quality of decision-making in DVA’s administration of the programme.

Improving the application of asset testing and income arrangements, addressing the integrity of residential aged care data and ensuring appropriate governance reporting and review arrangements are in place will strengthen the delivery of the residential aged care programme and further support effective and appropriate decision making across agencies.

DSS notes that in many instances, implementation has commenced in response to key findings and will continue to work closely with DVA and DHS on the joint delivery of aged care programmes.

 

Recommendations

Recommendation No. 1

Paragraph 2.8

To provide assurance that officials of the Department of Veterans’ Affairs (DVA) have valid delegations under the Aged Care Act 1997, and to facilitate the ongoing management of delegations, the ANAO recommends that DVA establish and maintain a central delegations register.

DVA’s response: Agreed.

Recommendation No.2

Paragraph 2.30

To improve compliance with the Aged Care Act 1997 (the Act) and the quality of decision-making by the Department of Veterans’ Affairs (DVA) under the Act, the ANAO recommends that DVA:

  • accurately capture and document the client’s current circumstances as required by the Act; and
  • consistently document its decisions including the client information that informs these decisions.

DVA’s response: Agreed.

Recommendation No.3

Paragraph 3.36

To improve the level of assurance relating to the integrity of residential care payments data, the ANAO recommends that the Department of Veterans’ Affairs take early steps to improve the quality of that data and establish quality and timeliness standards for its management of information, used as part of the data exchange process.

DVA’s response: Agreed.

Recommendation No.4

Paragraph 4.18

The ANAO recommends that the Department of Veterans’ Affairs should strengthen its risk management processes relating to the administration of residential care payments by addressing business‑level risks in the context of the wider departmental Risk Management Framework.

DVA’s response: Agreed.

Footnotes

[1] Productivity Commission, Caring for Older Australians, Productivity Commission Inquiry Report, Volume 1, No. 53, 2, Canberra, 2011, p. xxii, available from http://www.pc.gov.au/data/assets/pdf_file/ 0004/110929/aged-care-volume1.pdf> [accessed 2 April 2014].

[2] Department of Veterans’ Affairs, Portfolio Budget Statements 2012–13, Budget Related Paper No. 1.5B, p. 55.

[3] Asset and income assessments are not compulsory but if residents do not declare their assets and income they attract the maximum fees and charges payable for their care. In order for residents to be eligible for government subsidised care the resident must first be assessed by an Aged Care Assessment Team (ACAT), to determine their level of need.

[4] Victoria Cross Recipients and former Prisoners of War in residential care are the exception as they are entitled to have the cost of their basic daily fees paid by DVA.

[5] Responsibility for aged care transferred from the former Department of Health and Ageing (DoHA), now the Department of Health) to DSS on 18 September 2013, following changes to the Commonwealth Administrative Arrangements Order (AAO).

[6] An agreement exists between DVA and DSS (originally entered into by DoHA). Another agreement exists between Human Services and DSS (originally entered into by DoHA).

[7] The Aged Care Act and Aged Care Residential Subsidy Principles 1997 establish the overarching framework for the provision of aged care residential services and subsidies in Australia. While DVA administers the appropriation for eligible residents with an entitlement under legislation administered by DVA, DSS manages the appropriation for all other eligible aged care residents in Australia.

[8] To be entitled to receive government subsidies, an organisation must be approved by the Australian Government as an ‘approved provider’ and can only receive subsidies on behalf of the residents for the specified number of residential care places that it has been allocated.

[9] There is a risk of a breach of section 83 of the Australian Constitution where payments are made from special appropriations and special accounts in circumstances where the payments do not accord with conditions included in the relevant legislation. Section 83 of the Constitution provides that no money shall be drawn from the Treasury of the Commonwealth except under an appropriation made by law and requires that all spending by the Executive Government from the Consolidated Revenue Fund must be in accordance with an authority given by the Parliament. The possibility of this being an issue for DVA was reported in the notes to DVA’s 2010–11 financial statements, and during 2011–12 DVA undertook a detailed investigation of the issue. A financial quantification of potential breaches of section 83 in 2012–13 was also performed by DVA. This review identified that potential breaches in respect to the Veterans’ Entitlements Act 1986 were $59.7 million for the 2012–13 financial year, with $44.7 million of that amount relating to incorrect residential aged care payments. See ANAO Financial Statement Audit Report No.13 2013–14 Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2013, p. 147; and Note 32 forming part of the financial statements, in the Department of Veterans’ Affairs Annual Report 2012–13, DVA, Canberra, pp. 255–56.

[10] $9.4 million was incorrectly paid in 2011–12 and $26.4 million was incorrectly paid in 2012–13.

[11] A note provided to DVA’s Secretary on 9 July 2013 acknowledged that in ‘DVA’s Residential Care Allowance system, the business rules were set up incorrectly as far back as 1997’.

[12] In April 2014, DVA estimated that the overpayment for residential care payments was $10.2 million based on internal testing covering the period July 2013 to November 2013. The annualised estimate for the same period was approximately $24.5 million. Note 32 to the Financial Statements in DVA’s 2012–13 Annual Report, indicates that ‘DVA will continue to monitor its level of compliance with section 83 of the Constitution across all legislation for which it is administratively responsible. Where possible, future changes to procedures and amendments to legislation will continue to be progressed to reduce the risk of non‑compliance to an acceptably low level across all programs’. See Department of Veterans’ Affairs Annual Report 2012–13, Canberra, pp. 255–256. This footnote should be read in conjunction with footnotes 9,10 and 11.

[13] In February 2013, an internal review of risk management identified the need to develop formal reporting and monitoring of risks in business plans. During the course of the audit, DVA developed a risk assessment for the administration of residential care payments ‘to inform external stakeholders and others.’ However, at the time the audit fieldwork concluded, many of the treatments identified in the risk assessment were either not applied by DVA at the operational level, or were not effective.

[14] Under of the Aged Care Act, the value of a person’s assets must be determined at the time ‘specified in the determination’ (section 44–8AB) or on the day the person ‘entered the residential care service’ (section 44–5A).

[15] As necessary, the ANAO sought assistance from DVA technical experts in the residential care systems data exchange, and where required, program advice from income support decision-makers about specific cases in the Aged Care reports.

[16] The data exchanged by DVA in the data file, includes its acceptance (or non‑acceptance), for payment of the residential care subsidies for eligible DVA clients under the VEA. DSS is responsible for payment of the residential care subsidy for all other residents.

[17] Human Services advice to the ANAO, 11 March 2014. In its response to this audit dated 22 May 2014, DVA advised that it has now actioned all reports.

[18] In February 2013, an internal review of risk management noted the need for DVA to develop formal reporting and monitoring of risks in business plans; however, the process had not been developed or documented. Further, DVA’s 2013–14 state office business plans did not identify risks in respect to the administration of residential care payments or reflect that the outcomes of the review had been implemented.

[19] The Agreement was for three years from 30 July 2010 to 30 June 2013. The Agreement was extended through an exchange of letters for a further twelve months to 30 June 2014, in preparation for implementation of the new Aged Care Reforms and systems from 1 July 2014. Under the Machinery of Government changes on 18 September 2013, responsibility for aged care was transferred from DoHA to DSS.

[20] Liability relates to the agency that has financial responsibility for funding the residential care subsidy costs for particular clients.

[21] In its response to this audit, DSS acknowledged that the current inter-departmental governance arrangements between DSS and DVA can be strengthened to: provide additional assurance across the management of operational matters and issues as they arise; and provide additional clarity regarding the role of senior management in providing oversight on the operation of the agreement and resolving issues as required.