Kiwi Dale Pty Ltd and Minister for Aged Care - [2000] AATA 154

DECISION AND REASONS FOR DECISION [2000] AATA 154

ADMINISTRATIVE APPEALS TRIBUNAL )

) No V98/1214

GENERAL ADMINISTRATIVE DIVISION )

Re KIWI DALE PTY LTD
Applicant

And MINISTER FOR AGED CARE
Respondent

DECISION

Tribunal Mrs Joan Dwyer, Senior Member Mr W McLean, Member Mr I Campbell, Member

Date2 March 2000
PlaceMelbourne

Decision 1. The decision under review is set aside and the matter is remitted to the Minister For Aged Care for reconsideration in accordance with the following directions: (a) The redundancy payment ($7,886.96) and the payment in lieu of notice ($4,450.50) made to Sister Wilson are to be included as items of actual expenditure in the determination of a notional scale of fees in respect of Bambra House Nursing Home during the second investigation period. (b) The sum of $76,918, or such other sum as shall be agreed by the parties or decided by the Tribunal as the figure disallowed in respect of funding to make provision for contingent sick leave liability, is not to be included as an item of actual expenditure in calculating the notional scale of fees. 2. Liberty is reserved to the parties to apply (a) for clarification of the precise amount of funding for contingent sick leave liability referred to in direction (b) above, and (b) to reopen the issue of the 1% CAM penalty.

(Sgnd) Joan Dwyer
Senior Member
NURSING HOME - determination of a notional scale of fees - investigation of accounts upon receipt of a notice of sale – whether Director of Nursing entitled to redundancy payment on sale of business even though related to director of proprietor company - whether unreasonable to make a payment in lieu of notice to Director of Nursing - funding for provision for contingent sick leave liability - whether an item of actual expenditure - decision under review set aside and remitted for consideration in accordance with Tribunal's directions
Re Australian Nursing Federation and Others (1989) 31 IR 375
National Health Act 1953

REASONS FOR DECISION

2 March 2000 Mrs Joan Dwyer, Senior Member Mr W McLean, Member Mr I Campbell, Member

The parties pointed out as a preliminary point that the respondent was incorrectly described in the Tribunal register. With the consent of both parties the name of the respondent in the proceedings is changed from Department of Health and Family Services to Minister for Aged Care.
This is an application under s 105AB (1AA) of the National Health Act 1953 ("the Act") for review of a reconsideration decision made 23 September 1998 by a delegate of the Minister for Family Services ("the Minister") under s 46D (8) of the Act (T5). The delegate of the Minister affirmed a determination of a notional scale of fees for Bambra House Nursing Home in respect of a certain period (T10). The Tribunal had before it the documents ("the T documents") lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 ("the AAT Act") and also the exhibits tendered during the hearing. Mr M Heaton QC, appeared for the applicant, Kiwi Dale Pty Ltd ("Kiwi Dale"). Mr S Lucas, a Senior Government Solicitor, appeared for the respondent. Evidence for the applicant was given by Mr Powis and Sister Wilson. Evidence for the respondent was given by Mr Moore.
The issue as to the determination of a notional scale of fees for Bambra House Nursing Home arose because of the sale of that nursing home by Kiwi Dale. The date of settlement was 31 October 1996.
It is not necessary for the purpose of these reasons to set out in detail the funding arrangements between the Commonwealth and proprietors of nursing homes. In fact, as Mr Lucas explained in his opening, the funding system has changed since 30 September 1997. Nursing homes are funded partly by Commonwealth money. Those funds are paid in advance. Because the amount is calculated in accordance with the number of residents and the level of their care needs, based on past expectations, it is necessary for claimed expenditure to be validated. That is done by auditing the nursing home's records to ensure that the Commonwealth funds have been spent for the purposes for which they were provided. Retrospective adjustments to funding may be made in several situations.
When a nursing home is sold a new proprietor becomes accountable in respect of funds which have been advanced during the tenure of the vendor. The Act provides a mechanism for validating expenditure and adjusting accountability in respect of funds advanced prior to the date of changeover. Part VD of the Act is headed "Requirements In Respect of Sale of Approved Nursing Homes". Division 2 of that Part provides that a vendor must give notice of the sale of an approved nursing home to the Minister.
Section 65C of the Act provides that following the receipt of a notice of sale, the Secretary of the Department, being the former Commonwealth Department of Health and Family Services, must order investigations to be carried out. It provides, so far as relevant:
65C Investigation of accounts etc. of approved nursing homes
(1) Subject to section 65GAA, if the Secretary:
(a)has received notice of 90 days or more of the intended sale of an approved nursing home; or
(b)been otherwise informed of the sale 90 days or more before the proposed day of sale;
the Secretary must order the following investigations to be carried out in respect of the nursing home:
(c)an investigation in respect of the period beginning on a day determined by the Secretary and ending on the 30 June last past; and
(d)an investigation in respect of the period beginning on the 1 July last past and ending at the end of the day immediately before the day on which the contract of sale is completed.
(2) The purpose of each investigation is to:
(a)establish whether the vendor, or an earlier proprietor of that nursing home, has received an overpayment in respect of the nursing home, in respect of the investigation period; and
(b)if there has been such an overpayment - allow the Secretary to work out the amount of the overpayment and how much of it (if any) has not been recovered as at the last day in the investigation period; . . .
Thus s 65C(1)(c) and (d) provide for two investigation periods. The first concludes on "the 30 June last past". The second ends "at the end of the day immediately before the day on which the contract of sale is completed". That is the period which is relevant to this review. Section 65D provides further information as to the Secretary's task in respect of that second investigation period:
65D Secretary may also determine certain matters
(1)Before the second investigation in respect of the operation of an approved nursing home is completed, the Secretary must determine, in writing:
(a)whether, in the Secretary's opinion, the vendor, or an earlier proprietor of the nursing home, has received an overpayment in respect of the nursing home, in respect of the second investigation period; and
(b)the amount (if any) that, in the Secretary's opinion, is a fair estimate of the total amount of any such overpayment
(2)In determining an amount under paragraph (1)(b) the Secretary must comply with any relevant principles in force under subsection (3).
(3)The Minister may set out, in writing, principles to be complied with by the Secretary with respect to his or her powers under subsection (1).
Note: See section 65T for when the principles come into force.
The evidence is that settlement under the contract of sale in this matter took place on 31 October 1996. Thus the second investigation period is 1 July 1996 to the end of 30 October 1996. The term "overpayment" is defined in s 65(1) of the Act as having the meaning given by s 46B. So far as relevant, that section provides:
46B Meaning of overpayment
(1)Overpayment, in relation to Commonwealth benefit has the meaning given by subsection (2), (3) or (4).
(2)If the proprietor of an approved nursing home has received, by way of advance on account of Commonwealth benefit that may become payable in respect of an approved nursing home patient in the nursing home on a day, an amount that exceeds the amount payable to the proprietor in respect of the nursing home patient on that day, the amount of that excess is an overpayment.
(3)If:
(a)the proprietor of an approved nursing home has received an amount by way of advance on account of Commonwealth benefit that may become payable in respect of an approved nursing home patient in the nursing home on a day; and
(b)that benefit does not become payable;
the amount so received by the proprietor is an overpayment.
The Secretary determines, under s 65D of the Act, whether the vendor received an overpayment in respect of the nursing home in respect of the second investigation period, by calculating "a notional scale of fees" in accordance with s 46D of the Act. That section provides as follows:
46D Setting of notional fees
(1)The Secretary must, within 3 years after the end of an accounting period in respect of an approved nursing home, determine a notional scale of fees in respect of the nursing home.
(2)A notional scale of fees, in respect of the nursing home is determined:
(a)in relation to the accounting period in respect of the home; and
(b)in respect of the provision of nursing home care (other than care of a kind in respect of which benefit is paid under section 48B, 48C, 48D, 48E or 49) to approved nursing home patients in the nursing home during the accounting period.
(3) In determining the notional scale of fees, the Secretary:
(a)must take into account the actual expenditure incurred by the proprietor in respect of the provision of that nursing home care to approved nursing home patients in the nursing home during the accounting period; and
(b)may take into account such other things as the Secretary considers relevant.
(4)The Secretary must, for the purposes of determining the notional scale of fees, order an investigation to be carried out in respect of an approved nursing home to find out the actual expenditure so incurred by the proprietor.
(5)In determining the notional scale of fees, the Secretary must comply with the relevant principles formulated under subsection 40AA(7).
(6)The proprietor affected by a decision of the Secretary under subsection (1) may apply, in writing, to the Minister for a reconsideration of that decision by the Minister.
(7)The application must be made within 28 days after the proprietor receives notice of the decision.
(8)If the proprietor applies for reconsideration of the decision, the Minister may affirm or revoke the decision or vary it as he or she thinks fit.
. . .
There is no power under the Act to review a decision raising an overpayment. This application seeks review of the reconsideration under s 46D(8) of the Act, because the determining of a notional scale of fees is an integral part of the process of raising an overpayment. A delegate of the Secretary, on 23 September 1998, determined a notional scale of fees in respect of Bambra House Nursing Home, for the period ending at the end of 30 October 1996 (T10). The application before this Tribunal seeks review of the reconsideration and affirmation of that determination by the Minister on 11 November 1997 (T5).
There are four items in the determination of the notional scale of fees for the relevant period as to which there is a disagreement between the parties, requiring a decision by the Tribunal. They are:
(i)redundancy payment to Sister Wilson;
(ii)payment in lieu of notice to Sister Wilson;
(iii)funding to make provision for contingent sick leave liability
(iv)1% penalty in respect of Care Aggregated Module ('CAM') expenditure.

redundancy payment $7,886.96

Section 46D (5) provides that in determining a notional scale of fees the Secretary must comply with relevant principles ("the principles") formulated under sub-s 40AA (7). It was not contested that principles have been formulated under that sub-section (T14 as amended by T12) and that those principles deal with redundancy. Principle 32(26U) (T14.32) provides for the funding of redundancy payments required by relevant awards or required by law. It was also not in issue that Sister Wilson had been the Director of Nursing at Bambra House Nursing Home throughout the period that it had been owned by Kiwi Dale.
The Nurses' (Victoria Health Services) Award 1992 ("the Award") (T17) in paragraph 37 provides for redundancy payments to be made. The Award provides that where an employee is entitled to redundancy pay under that section of the Award, and has four years and over continuous service the employee shall be paid eight weeks redundancy pay.
The award does not specifically provide that where a nursing home changes ownership a redundancy payment will be payable. That was originally an issue in this matter. However, the applicant's Statement of Facts and Contentions referred to the decision of Re Australian Nursing Federation and Others (1989) 31 IR 375 at 377–380, as authority for the view that an employee is entitled to a redundancy payment when a business is sold. At the hearing Mr Lucas said that the respondent no longer challenged that view.
Sister Wilson is a State Registered Nurse, division 1. The issue as to whether she is entitled to a redundancy payment arises because, as Sister Wilson explained in her statement of evidence, the directors of Kiwi Dale are her brother, David Powis, and her husband, John Wilson. The shareholders in Kiwi Dale are David Powis, 1 share, and Hyton Nominees Pty Ltd, 11 shares. Sister Wilson is herself a director of Hyton Nominees, and also the holder of 1 A class share which is a voting share and not a dividend share. The other directors of Hyton Nominees are her husband John Wilson and her brother and sister-in-law David and Helen Powis (R2).
The respondent's case was that the redundancy payment of $7,886.96, to Sister Wilson was "unreasonable or excessive", and therefore should be disregarded in accordance with Principle 9 (1) which provides:
In determining the basic nursing and personal care cost in accordance with principle 7, the Secretary shall disregard any cost which is unreasonable or excessive.

It was agreed that the payment to Sister Wilson was in accordance with the Award (T17.2 paragraph 37(c)(i)), but it was contended on behalf of the respondent that it was "unreasonable or excessive" because of Sister Wilson's relationship to the directors of Kiwi Dale which was the proprietor of Bambra House Nursing Home.

There was no challenge to Sister Wilson's evidence that she was the Director of Nursing for Bambra House Nursing Home throughout the whole period of Kiwi Dale's proprietorship, and that she was the person in charge of the nursing home on a day-to-day basis. Nor was it suggested that she did not perform her duties in a proper and efficient manner. The respondent placed some reliance on the fact that at times Sister Wilson attended conferences or seminars or meetings related to her work as Director of Nursing. There was no evidence to persuade us that such attendances were anything other than appropriate. We do not find that they interfered with Sister Wilson's performance of her duties so as to affect her entitlement to a redundancy payment.
The respondent relied on principle 9(3) which provides as follows:
(3)Where –
(a)a transaction between the proprietor of a nursing home and another party is not at arms length; and
(b)the Secretary is of the opinion that a purpose of the transaction, or an effect of the transaction, is to provide the proprietor with information, for the use of the Department, which shows an unreasonable or inaccurate price or payment for the service which was the subject of the transaction,
the Secretary shall, in determining the basic nursing and personal care cost in accordance with principle 7, take into account, in respect of that transaction, a reasonable or accurate price or payment for the service.
In our view principle 9(3) has no application to this matter. Even though the transaction was not at arms length, due to the fact that Sister Wilson was a director of and owned one voting non-dividend entitlement share in the parent company, Hyton Nominees Pty Ltd, the Tribunal is of the view that the transaction does not show an unreasonable or inaccurate price or payment for Sister Wilson's redundancy. The employment of Sister Wilson did not lead to the Department being provided with information showing an unreasonable or inaccurate payment for her services. This is not a case of a family member pretending to be on a payroll in order to inflate the running costs of a nursing home, and thus the notional scale of fees. Sister Wilson was an employee performing all the appropriate duties of her responsible position as Director of Nursing. Had she not performed those duties some other properly qualified Director of Nursing would have had to be employed. There was no evidence that such other person would have been paid at a lower rate than Sister Wilson. We find that Sister Wilson was entitled to a redundancy payment in accordance with the Award.

payments in lieu of notice $4,450.50

The respondent's submissions in respect of the payment of five weeks salary in lieu of notice, were essentially the same as those in respect of the redundancy payment, but there was an additional contention. The respondent submitted that, as the contract of sale of the nursing home became unconditional as to finance, sometime in July 1996, there was plenty of time to give Sister Wilson notice, and therefore she should have been given notice rather than payment in lieu of notice. It was not in issue that the amount paid, five weeks salary, was the payment specified under the Award in paragraphs 38(b)(i)(1) and (2) (T18.1). The payment was therefore not excessive, unless it was excessive to pay Sister Wilson anything at all. The submission of the respondent was that it was unreasonable to make a payment in lieu of notice, when it was known from July 1996 that the sale was expected to proceed.
The applicant responded to that submission in its Statement of Facts and Contentions
2.1)Bambra House had been offered for sale over a considerable period and two proposed sales did not complete.
2.2)In relation to the contract of sale to Hickory Downs the settlement date was changed from when the contract was drawn.
2.3)Completion date was to be 31 August 1996, it was extended to 30 September 1996 and finally settled 31 October 1996.
2.4)The uncertainty of settlement meant the directors could not provide specific notice because should the sale not proceed, as had occurred in the past, they would have to reemploy the director of nursing or appoint a new person to the position.
2.5)Sister Wilson could not therefore be given notice as the actual date of transfer of ownership was not certain and a director of nursing was required at the home.
Mr Powis gave evidence and was cross-examined about those matters. We accept his evidence. We find that, although there was a binding contract of sale of the business from July 1996, the proprietor, Kiwi Dale, could not be confident as to the precise date when the sale would actually be finalised, until the actual date of settlement on 31 October 1996. Thus notice could not be given to Sister Wilson that her services were no longer required until that date. It was essential to have a Director of Nursing in charge of the running of the nursing home at all times, both for the well being of the patients and so that the nursing home could be transferred as a going concern.

Mr Lucas submitted that, because of her family relationship to the two directors of Kiwi Dale, Sister Wilson should have been prepared to go on working as long as required, in order to facilitate the sale. He submitted that she could have been expected to forego her rights under the Award to payment in lieu of notice. We see no reason why her family relationship should affect Sister Wilson's entitlement under the appropriate Award. We find that it was appropriate that Sister Wilson be paid five weeks salary in lieu of notice. We find that the amount of $4,450.50 paid to Sister Wilson as a payment in lieu of notice should have been allowed as a substantiated item of expenditure in the determination of a notional scale of fees.

funding to make provision for contingent sick leave liability

This is the most complex issue. First, the amount varies in different documents. It is stated to be $76,918 at paragraph 3 of the applicant's Statement of Facts and Contentions and also in paragraph 66 of the s 37 statement. A different figure is given at T8.15 ($67,364), and the sum of $80,560.00 is specified in paragraph 10 of Mr Moore's Affidavit (R1). We do not propose to embark on the task of trying to reconcile the different figures. We assume that $76,918 is the correct figure as both the applicant and the respondent have referred to that figure. In case there is no agreement on that issue, we will reserve liberty to the parties to apply for a decision as to the precise amount in issue.
We consider that this aspect of our decision becomes less complex once it is clearly understood that the amount in issue is not "sick leave funding", but funding to make provision for the contingency that staff of the nursing home may need to be paid sick leave. The issue arises because part of the formula for funding of nursing homes involves payments being made by the Commonwealth to proprietors in order to ensure that they are adequately funded to pay any sick leave to which employees may become entitled. The evidence was that proprietors of nursing homes were funded to the level of 75% of the maximum sick leave entitlement of the employees employed at the nursing home at the relevant period. The historical background and the relevant calculations are set out in Mr Moore's affidavit (R1) and the attachments to that affidavit. According to Mr Moore's affidavit, paragraphs 4–10, the total amount of unused provision for contingent sick leave entitlements paid by the Commonwealth to the proprietor of Bambra House Nursing Home was $126,342.00 as at the end of 30 October 1996. We accept Mr Moore's evidence and find that the Commonwealth over the period relevant to this matter had provided funding to the extent of 75% of possible future sick leave liabilities.
There is a provision in the Award which sets out, the maximum amount of accrued sick leave hours that an employee can retain or transfer from the employment of the vendor of a nursing home to that of the purchaser. The relevant clauses of the Award are set out in the reviewable decision at T5.7, and at T19. Clause 27(b)(1) in respect of Senior Registered Nurses provides:
Clause 27(b)(i) If the full period of sick leave as prescribed in subclause 27(a) is not taken in any year, such portion as is not taken shall be cumulative from year to year, provided that, where a business is transmitted from one employer (the transmittor) on or after 2 September 1980, to an other employer (the transmittee) an employee who worked with the transmittor and who continues in the service of the transmittee the amount of accumulated sick leave which exceeds 224 hours shall be disregarded.

The Award provides in relation to other Nursing and Personal Care staff:

Clause 66(b)(i) If the full period of sick leave as prescribed in subclause 66(a) is not taken in any year such portion as is not taken shall, where an employee remains in the service of the same employer or any successor(s) of that employer, be cumulative from year to year; provided that, where a business of an employer is transferred on or after 2 September 1980 to a successor(s) and an employee of the employer becomes an employee of the successor(s) the amount of the accumulated sick leave which exceeds 212 hours and 48 minutes shall be disregarded.

It was agreed that all the employees of Bambra House Nursing Home except Sister Wilson transferred to the new proprietor. Thus according to the Award they all lost all their accrued sick leave entitlements, save for 224 hours for Senior Registered Nurses, and 212 hours for other nursing and personal care staff.
The contract of sale provided in paragraph 4 (T21) as follows:
On the settlement date, the following adjustments shall be effected:
The parties agree that in addition to the usual adjustments of rental, rates, taxes and outgoings the following adjustments to the purchase price will be made:
Sick leaveN & PC staff 75% of entitlement up to a maximum of 224/212 hours according to the relevant award requirements
Thus the contract provided that the funding received by Kiwi Dale, from the Commonwealth, in respect of provision for ongoing contingent sick leave entitlements was to be adjusted between vendor and purchaser in accordance with the accrued sick leave credits recognised by the Award. The issue before the Tribunal is what concerns the funding for contingent sick leave entitlements which, at the close of business on the day prior to settlement, had not been expended to meet sick leave liability, and which, because of the operation of clauses 27(b)(i) and 66(b)(i) of the Award, would not be called upon in the future.
Mr Heaton for the applicant submitted that the Department was not entitled to recover the unused amount of provision for sick leave, or that if it was entitled to recover that amount, it should be recovered from the purchaser rather than the vendor. The applicant stated in its Statement of Facts and Contentions:
3.11)The asserted right of the Department to recovery in respect of sick leave entitlements:
a)Is not authorised by the National Health Act 1953 (NHA);
b)Is contrary to part VD of the NHA.
3.12)The purpose of VD of the NHA is to adjust actual expenditure by the vendor and actual movements in entitlements. That is it is to adjust actual payments and movements in entitlements and payments for training etc.
3.13)The sick leave should not be adjusted by the Department in accordance with the award clauses 27 and 66 either at 30/10/96 because it is irrelevant to the Department.
3.14)The sick leave adjustment is a matter between the vendor, Kiwi Dale, and the purchaser, Hickory Downs under contract of sale it has nothing to do with the Department.
3.15)S46C(9) and S65C(I)(d) both provide that the accounting period and the second investigation period, respectively, "must" end on the day prior to the day of settlement.
3.16)Both the purchaser and vendor were aware of the legislative requirements and contracted on the basis thereof.
3.17)Kiwi Dale correctly reported its entitlements at 30/10/1996.
3.18)The award provisions in clauses 27 (224 hours) and 66 (212.8 hours) are peculiar to Victoria. They do not apply in any other State.
3.19)On 30 October 1996 being the date referred to in the sections the sick leave entitlements of Kiwi Dale were intact. This is the day before the date of settlement.
3.20)At no time thereafter did Kiwi Dale's entitlements for sick leave reduce other than to a zero balance following settlement.
3.21)The ability to disregard cumulative sick leave entitlements over 224/212.8 hours under the award does not apply to the vendor. It is solely for the benefit of the purchaser and the adjustment occurs in the purchaser's accounting period and in its own records.
3.22)As the accounting period under the NHA ends one day prior to the settlement date, that date becomes the closing balance for the vendor's entitlements and that balance then consequently becomes the opening balance of the purchaser for the purpose of the Department's reconciliation of the 1996/1997 Nursing Home 20 as at 30/6/1997. In this way the Department's ability to recover any funding it feels is appropriate is not negated by the settlement. The Department is entitled to recover from the then proprietor according to whether entitlements to sick leave payments have been taken up or not, that is, according to whether sick leave payments have or have not been made.
3.23)The accounting period and the second investigation period under the NHA mean the Department is not entitled to recover funding from the vendor because the adjustment does not occur until after settlement has occurred and it is a "take up" liability level for the purchaser. The level of staff entitlements remains intact for the vendor and is only reduced in the books of account after the sale is completed and then it is reduced to zero. The lower entitlements for staff are taken up in the books of account of the purchaser after the purchaser takes up a notional amount the equivalent of the vendor's entitlements at 30/10/96.
3.24)There is thus a dramatic difference between the accounting period ending 30 October 1996 and settlement occurring on 31 October 1996.
3.25)If the Department declares the end of the accounting period for the vendor as 30 October 1996, then by definition it must determine the first day of the next accounting period to be 31 October 1996 which then becomes the responsibility of the purchaser. Since the reduction of sick leave does not occur until settlement on 31 October then it clearly falls into the purchaser's accounting period not the vendor's.
3.26)Since accounting periods are contiguous it follows the opening balance of the 2nd accounting period, being the period from commencement of the purchasers period from completion date and upon settlement through to the following 30th June, must commence with the closing balance of the vendor's liabilities as at 30/10/96, irrespective of what has been taken up in the books of account of the vendor on 31/10/96 or what is adjusted financially between vendor and purchaser in the contract of sale on 31/10/96
Those contentions rely on the accounting periods specified in s 65C(1)(d) of the Act and on the reference in s 65D(1) to "an overpayment in respect of the nursing home, in respect of the second investigation period". Mr Heaton claimed that there was no overpayment in respect of sick leave entitlements in the second investigation period because the sick leave entitlements of the employees of the Bambra House Nursing Home remained intact until it was transferred to the purchaser. He submitted that it was only in the hands of the purchaser that accrued sick leave entitlements were extinguished, save for the credits of 224 or 212 hours per employee which were preserved, and transferred to the employees new employment with the purchaser of the nursing home.
There are however some errors or omissions in those submissions. First Mr Heaton did not refer to the fact that the second investigation period, is defined as ending "at the end of the day immediately before the day on which the contract of sale is completed" i.e. at the end of 30 October 1996. Secondly, the Award is clear that the sick leave not taken is disregarded (except for the preserved 224 or 212 hours) "where the business . . . is transferred". The reduction in entitlement occurs on transfer, and not in the hands of either the vendor or the purchaser.
We have concluded that the applicant's submissions confuse a "contingent liability" and an "actual expenditure". Section 46D(3) provides that in determining the notional scale of fees the Secretary must take into account "the actual expenditure incurred by the proprietor . . . during the accounting period." While it was appropriate, and necessary, for Kiwi Dale to hold funds in an account to make provision for contingent sick leave liability during the accounting period, at the end of the last day of that accounting period funds which had not been required to satisfy the liability to pay sick leave had not been expended. Thus there was no "actual expenditure incurred by the proprietor" in respect of those funds.
Funds were advanced to Kiwi Dale on account of its contingent liability to pay sick leave. Any payment of sick leave during the second investigation period would have been "actual expenditure" within the meaning of that term in s 46D(3). But once the day before the settlement had concluded, it was clear that sick leave expenditure which had not then been incurred would not have to be expended, because the Award had extinguished accrued sick leave entitlements, except for the preserved entitlements. There was no "actual expenditure" in respect of sick leave liabilities which had ceased to be contingent.
We find that the Commonwealth funds advanced to allow Kiwi Dale to make proper provision for contingent sick leave entitlements, which had not been required "at the end of the day" preceding the settlement day, and which were not adjusted at settlement, were not "actual expenditure incurred". Those funds should not be taken into account in determining a notional scale of fees pursuant to s 46D of the Act.
That part of the reviewable decision which related to funding to make provision for contingent sick leave liability will be affirmed. We agree with the reasoning in paragraph 2.7.5 of the reviewable decision at T5.8:
Sick leave provisions cover future contingencies, ie possible future liabilities. The sale decision, because of the Award limitations on the transfer of sick leave entitlements, reduced the amount of future possible liabilities. Therefore, it is appropriate to reduce funding to the amount of the transferred liabilities.

1% tolerance recovery on CAM acquittal

The acronym CAM was explained in the s 37 statement as follows (T1 para 11):
CAMThe CAM (Care Aggregated Module) covered the cost of staff providing nursing and personal care to residents. This component was paid at a daily rate based on the level of care needed for each resident. It was paid strictly for the provision of nursing and personal care.
The s 37 statement explained the way in which the CAM component of the Nursing Home Fee was treated:
CAM . . . funding which was not spent, or spent incorrectly, would generally have been recovered by the Commonwealth.
. . .
Adjustments to Funding
14.Retrospective adjustments to funding were made in several stages:
·funding was adjusted monthly when actual resident numbers and categories were known;
·proprietors reported nursing and personal care expenditure each quarter. At the end of each of the first three quarters of the financial year, the information was collated and reconciled against the actual funding received by the home;
·proprietors lodged an annual statement of expenditure (the NH20 form) detailing CAM . . . expenditure. A comparison was made between the funding received by the home and the annual statement of advised actual expenditure. This process was called "reconciliation";
·claims for CAM . . . made on the annual statement, were verified against nursing home records. This process was called "validation" and involved an examination of records required to be kept by proprietors in support of claims for benefit. This process usually occurred some years after the financial year in question; and
·if proprietors had spent between 98% and 101.5% of their entitlement, they were paid a 1% bonus by the Commonwealth, if, however, the proprietor spent less than 90% of their entitlement a 1% penalty was imposed. This arrangement was obviously designed to encourage facilities to spend funds provided for the care of residents actually on that care.
15.That scheme has now been superseded for nursing homes and hostels by that contained in the Aged Care Act, 1997.
The authority for the imposition of a 1% penalty was found in the Principles paragraphs 36(26) (pa), (pb), (pc) and (pd) (T14.31–32) as amended by Amendment 3 of 1995 with effect from 1 July 1995 (T12.8).
The s 37 statement explained the reasons for the decision to impose a 1% penalty in this matter:
74.Because a large amount of funding was disallowed in relation to sick leave entitlements, the Home's expenditure was below 90% of their entitled funding.
75.The delegate therefore affirmed the imposition of the 1% penalty. The penalty was an amount of $1,925.
As we have already indicated, we will be varying the decision under review to reduce the funding disallowed by $12,337.46 being $7,886.96 in respect of the redundancy payment and $4,550.50 in respect of the payment in lieu of notice made to Sister Wilson. That would reduce the amount of the 1% penalty to some extent.
However during the hearing we expressed concern about the imposition of any penalty, when the reason for under expenditure was simply that funding held to make appropriate provision for paying sick leave entitlements had not been required, due to the sale of the nursing home.
The evidence was that Bambra House Nursing Home, under the management of Sister Wilson and those involved with financial matters within the Kiwi Dale structure, had always expended more than 90% of its CAM funding.
The Tribunal explained to Mr Lucas that if the Principles imposed a penalty because provision for contingent sick leave liability was no longer required from the end of 30 October 1996, that would appear to be contrary to the stated object of the penalty provision as set out in paragraph 14 bullet point 5 of the s 37 statement. Mr Lucas responded that the CAM tolerance rules and penalties were applied in accordance with a formula and that the application of that formula, as set out in principle 32(26) 26A, as amended by T12, led to "a fairly obvious result" (trans. p16). The Tribunal expressed doubt that the legislation could really require that a 1% penalty be imposed in such an inappropriate situation. Mr Lucas obtained instructions to agree to liberty being reserved to the parties to apply to reopen the matter for argument on that issue if, once the Tribunal had made its decision on the other three items, the parties could not reach agreement on that issue. The Tribunal agreed to adopt that course. We therefore propose to reserve liberty to the parties to apply to reopen the matter as to the 1% penalty issue.
The decision under review will be set aside and the matter will be remitted to the Minister for reconsideration in accordance with the following directions:
(a) The redundancy payment ($7,886.96) and the payment in lieu of notice ($4,450.50) made to Sister Wilson are to be included as items of actual expenditure in the determination of a notional scale of fees in respect of Bambra House Nursing Home during the second investigation period.
(b) The sum of $76,918, or such other sum as shall be agreed by the parties, or decided by the Tribunal as the figure disallowed in respect of funding to make provision for contingent sick leave liability, is not to be included as an item of actual expenditure in calculating the notional scale of fees.
Liberty will be reserved to the parties to apply for
(a)clarification of the precise amount of funding to make provision for contingent sick leave liability referred to in direction (b) above and
(b)to reopen the issue of the 1% CAM penalty.
I certify that the 45 preceding paragraphs are a true copy of the reasons for the decision herein of Mrs Joan Dwyer, Senior Member, Mr W McLean, Member and Mr I Campbell, Member
Signed:         Anne O'Rourke
  Associate
Date/s of Hearing  24 and 25 January 2000
Date of Decision  2 March 2000
Counsel for the Applicant        Mr M Heaton QC
Solicitor for the Applicant         Nevodic & Co
Counsel for the Respondent    Nil
Solicitor for the Respondent    Mr S Lucas, Australian Government Solicitor