- From a provider’s perspective what does the Royal Commission presage in enterprise risk management terms?
- If an organisation has a current and effective ERM process then it needs to be reviewed, improved and maintained on a regular basis, for organisations with less well developed ERM processes this is an opportunity to facilitate change.
- The post-Royal Commission environment is likely to require considerable re-evaluation of risk appetite to ensure survival.
By GEOFF BARTELS FGIA Managing Principal, Sirius Enterprise Risk Management Pty Ltd ©
First Published In Governance Issues 1 April 2019 – Governance Issues is the Journal of the Governance Institute
The risk management environment for aged care is being highlighted by the Terms of Reference of the Royal Commission into Aged Care Quality and Safety (the Royal Commission).
Of the extensive list of issues to be investigated and reported upon as set out in the Terms of Reference only a small portion of these issues focus directly upon headline grabbing personal safety issues inside residential facilities and home care.
That is, the Commissioners are to report (in small part) on ‘…mistreatment and all forms of abuse, the causes of systemic failures and any actions that should be taken in response.’ A useful insight into the early direction the Royal Commission can be gleaned from the Background Paper 1 published by the Royal Commission in late February 2019. If one has time to read the paper when coupled with the Terms of Reference one gets a good feel for the issues most likely to eventually loom large.
In their introductory remarks on the Royal Commission’s web site the Commissioners identify 5,000 submissions to the government over an unspecified period of time in respect of the current quality and safety in the delivery of aged care services. In 2017–2018 more than 1,300,000 older Australians received Federal Government assistance of which 259,000 were in residential care, the balance being home care and home support. While still a significant number of complaints and each one is to be regretted in the extreme, by any measure this number is significantly less than one could properly anticipate in percentage terms in a human services industry of this enormous size and complexity
All operators, of course, target zero complaints and one does not minimise the individual trauma, significance and consequences of the actual events being reported to the Royal Commission. Yet from an organisational perspective the risk management outcomes need to deal with these events proportionately and in context.
On balance the remaining 25 heads of inquiry not set out above but mandated for the Royal Commission in the Terms of Reference focus steadfastly on how the system of delivery of aged care services as a sector can be improved from a government perspective with a particular view to future delivery.
While one can certainly predict that the news media’s focus will remain on the headline-grabbing evidence of abuse, mistreatment and regrettably criminal conduct of the few (which will continue to find currency in the Commission’s evidence), the Terms of Reference promise a wide and deep window into the industry and delivery of services to the aged well into the future.
So from a provider’s, for profit or for purpose, perspective what does the Royal Commission presage in enterprise risk management terms?
Firstly, except in those cases of maltreatment and abuse which will be highlighted and cannot be trivialised in any way, one can anticipate that the most significant risk issues arising will be medium to long-term changes to funding, attracting and retaining staff, board effectiveness (mix of skills), the ongoing balancing of care and the pursuit of viable commercial strategies and governance. They will sound in possible changes to the manner of delivery of aged care in particular residential and home care. The Royal Commission has adopted Anna Howe’s pyramid of aged care sectors1 of which residential and home care are two.
One can confidently predict that post-2020 all providers will need to be much more nimble.
Operators are already facing significant challenges in home care under the Consumer Directed Care (CDC) regime. The Department’s web site has no update from August 2018 as to any target date for the application of CDC to residential aged care. One might properly anticipate that any movement now to CDC for residential care is likely to occur following the delivery of the Royal Commission’s final report slated for 30 April 2020 (subject to any extension(s) granted to the Commissioners).
US research has identified non-financial and non-operational benefits in resident and staff satisfaction in facilities applying some but not all CDC practices. What the Commissioners may find we must wait and see.
What then can operators usefully do to facilitate their risk management practices while awaiting the outcomes of the Royal Commission?
One can confidently predict that post-2020 all providers will need to be much more nimble. Providers can therefore commence to review critical operations to enhance their ability to be adaptable.
As you will be aware ERM is urged by the several standards (ISO31000, COSO Enterprise Risk Management — Integrated Framework among other relevant standards) to be a continuous process of review and improvement. ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations — Principle 7 mandates that listed companies develop maintain and disclose their risk management framework and undertake continuous improvement. Many listed companies disclose in their quarterly reports the ERM improvements made over the last quarter.
The Aged Care Quality Standards effective from 1 July 2019 mandate that an organisation to maintain accreditation must maintain organisation- wide risk management processes in place (8(3) (c) and (d)) and also the outcome of Standard 7. Standard 8(3)(c)(ii) mandates continuous improvement. These are risk management outcomes and should be adopted already given the short time frame for commencement, 1 July 2019. However, the process for continuous improvement sits neatly within an ERM framework if properly implemented. In that event it will be relatively cost efficient to achieve assuming all other components of an organisation’s framework are fit for purpose.
If an organisation has a current and effective ERM process then it needs to be reviewed, improved and maintained on a regular basis. Reviews should focus on the embedding of risk ownership at the appropriate levels in the organisation. Risk ownership must not be left only to the senior management level but also be incorporated at the operational level where risks to service delivery occurs and can most effectively and expeditiously be mitigated.
When reviewing or creating ERM processes reporting lines should be clear, effective and unfiltered whether that be ultimately to the CEO or the board.
Policy and procedures should be clear, intelligible and well communicated through the whole organisation. The tone at the top is critical to embedding a culture of risk management within the organisation which is not seen as a tick a box adding work without creating value for the organisation.
ERM must be integral to the value proposition of the organisation and created in context.
So for an aged care provider in any of the industry sectors looking to 2020 what does that mean?
One would anticipate that the recommendations adopted from the Royal Commission’s reports will focus on lower cost client service delivery to government with higher levels of surveillance and accountability. There will therefore be a very strong temptation to default to compliance analysis in ERM rather than a holistic approach to risk. This is to be avoided.
If the risk process is nimble and effective through the whole organisation it should serve to enhance opportunities arising from the new regulatory, market and financial environment.
Without any real prescience one can anticipate that those organisations which recognise their exposure to market forces and get on the front foot rather than waiting to react to governmental driven changes will be better able to exploit opportunities earlier than their competitors. In some cases this will almost certainly require a rethink of the organisations risk appetite and related risk processes.
For those organisations whose ERM processes are less well developed or not yet properly embedded there is an opportunity to use the ERM processes to facilitate change within the organisation.
Traditionally aged care has been extremely risk averse given the extensive regulatory environment and the significant consequences of non-compliance (as it ought). This has, however, tended to flow over into the commercial and marketing functions. With the preponderance of government funding and accommodation bonds underwriting the cash position of providers it is understandable that was the default outcome.
Perhaps to some counterintuitively, the post-Royal Commission environment is one that is likely to require if not radical shifts in risk appetite then considerable re-evaluation of risk appetite to ensure survival. Market driven revenue streams will require re-modelling away from the industry’s previous risk paradigms to ensure survival.
The Royal Commission’s Terms of Reference give those organisations with the foresight and will to use this time to be post 2020 ready a substantial heads up on the risk profile just around the corner.
- Commonwealth of Australia, 2019, Navigating the maze: An overview of Australia’s current aged care system, p 8 https://agedcare.royalCommission.gov.au/publications/Documents/background-paper-1.pdf
Geoff Bartels can be contacted on (02) 9804 1800 or by email at firstname.lastname@example.org.
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