As part of the revised compliance standards to be implemented by Care Quality Commission (CQC) it is vital for home operators to be aware of the financial aspects that the changes in legislation mean for them. From 1 April 2015, CQC will be recognised as the financial regulator for the sector, meaning it will now have the power to enquire in to operators’ financial information.
The forthcoming changes are some of the biggest the sector has seen and, as expected, largely revolve around the delivery of care and the safety of the service users. However, the implementation of financial compliance reviews will now form part of the inspection process.
This briefing will talk about the financial aspects of the upcoming compliance changes, including what has prompted the changes, what you can expect from the new standards and in what ways your home can manage the additional regulations, ensuring compliance is maintained.
Why the changes?
Following a number of recent failures there were recommendations that the Government should do more to monitor the finances of care home operators in the UK. As such, the Government has reviewed the current mechanisms in the UK care sector and, following a public consultation, the current legislation as defined in Outcome 26 is not considered to be sufficient. This has led to the implementation of Priority 3: Approach to monitoring the finances of some providers, which comes into effect on 1 April 2015.
The failure of Southern Cross in 2011 is undoubtedly a key reason that the Government and regulator are taking this pro-active approach to monitoring the financial fundamentals of some operators and linking this with being able to deliver quality care and to protect the service’s users.
Darlington-based Southern Cross, the largest provider of care in the UK, equating to 9% of market share, collapsed in 2011 in the backdrop of the financial crisis. The care group took considerable financial risks, coupled with the financial recession, which consequently led to its closure.
The standard pre April 2015
Outcome 26 requires the service provider to take all reasonable steps to carry on the regulated activity in such a manner, to ensure the financial viability of the carrying on of the activity. The legislation goes on to ‘prompt’ providers to consider:
Does the provider have the necessary financial resources?
Does the provider have the necessary insurance and indemnities?
More importantly, this is NOT one of the Core 16 Quality and Safety Standards
What are the changes?
Priority 3: Approach to monitoring the finances of some providers comes into effect for all CQC regulated care providers from 1 April 2015 and will see ‘some’ providers financially monitored.
Some providers is not defined, but larger providers will almost certainly be monitored. Smaller providers, depending on local or regional concentration and specialism of services, may also be monitored. For providers operating in specialist care or rural areas, who would be difficult to replace, the chances of your home being on the financial compliance radar of CQC are almost certainly increased.
The new legislation has two key objectives:
- To clarify duties on local authorities, ensuring continuity of care if the provider fails. Failed homes will be then managed by the local authority to protect the service users. Currently there are around 40 homes managed by local authorities.
- To establish CQC as the financial regulator of the sector; with the power to regulate the financial aspects of providers as well as the care aspects.
From April 2015 CQC will:
- Require regular financial and relevant performance information from some providers.
- Provider early warning of a provider’s failure, to “ensure a sustainability plan can be implemented to manage and reduce the risks of failure.”
- Seek to ensure managed and orderly closure of failed homes.
CQC are likely to carry our financial checks on 50-60 providers, based on size, local or regional concentration or specialism of services; typically providers who are difficult to replace if they fail will be targeted.
So what can you do to manage the changes?
It is important for providers to review the financial processors of their business to ensure they remain compliant under the new legislation; this pro-active approach should also assist with improving profitability – something which has been difficult in recent years with on-going funding pressures.
As a minimum, we would suggest that all providers should undertake and adhere to the following:
- Keep your accounting records up to date.
- Implement a financial reporting timetable and framework. Agree a weekly/monthly review of financials and stick to them!
- Prepare annual budgets and review against management accounts to continually assess performance, which could an provide early warning sign of difficulties and changes.
- Monitor your risks to financial sustainability, including a review fixed costs vs. variable costs and a consideration of how quickly you can adapt to changes in operating levels e.g. occupancy levels, staffing levels etc.
How can we help?
At Hawsons our dedicated team of specialist accountants and tax advisors offer a wealth of experience in the care sector, including residential homes, nursing homes and other specialist care services.
We can provide you with
Pro-active financial advice, including:
- Interim management accounts
- A review of your financial reporting system
- Year end statutory accounts and tax planning strategies
- Budgets and forecasts to support on-going financial performance evaluation or to service existing or additional finance requirements
- Performance benchmarking looking at how your home compares to other local homes and competitors
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