Child Care Discussion Paper

Who will care for the children? (The Daily Telegraph, 27 Nov 2008)

REFORMING THE CHILD CARE SECTOR IN NEW SOUTH WALES INTRODUCTION Until ABC Learning collapsed so spectacularly last year, the corporation cared for around 20 per cent of NSW’s 130,000 children in day care centres. The truth is there was no regulation in place, at either state or federal level that might have stopped it. Twelve months later, there are still no rules in place that would prevent it happening again. A look back over the last fifteen years helps explain why the child care sector has suffered such a spectacular fall from grace. In this time the child care industry has attracted significant federal funding and, as the number of parents in paid work with young children has continued to rise, the size and importance of the sector has also risen. Long day care centres now receive payments directly from the Federal Government. A significant proportion of parents also received fee relief from the Federal Government, and both payments have enabled long day care centres to become attractive business and investment propositions. Guaranteed government funding has also meant infants and young children are cared for in a regulated and protected environment that enables their parents to commit to regular employment, comforted by the knowledge that their children were safe and secure. It was all part of the employment boom and women’s employment boomed in particular. The collapse of ABC Learning sent shock waves through the industry, government and of course through families. Parents, mainly women, were forced to reduce working hours or even leave work when non-viable centres were closed. The Federal Government provided $34 million to enable a number of centres to continue operating until 31 March 20091 and that means families at a further 85 ABC Learning centres in NSW are still waiting anxiously for the results of the current tender round, hoping their centre will be saved. Media headlines as the ABC Learning collapse unfolded reflects the impact of instability in the child care sector on families: “Parents worried about ABC Learning Childcare Centres” ABC News, 7 November 2008 “120,000 kids in limbo after ABC Learning crisis” The Daily Telegraph, 8 November 2008 “ABC failure to hit parents of under twos hardest” The Daily Telegraph, 17 November 2008 “Fast Eddy' leaves ABC Learning investors reeling” ABC News, 27 November 2008

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Gillard, The Hon. J., “ABC Learning”, Media Release, 10 December 2008.

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“Who will care for the children?” The Daily Telegraph, 27 November 2008 “Frantic hunt for places as childcare crisis worsens” The Daily Telegraph, 28 November 2008 “Families reel from ABC Learning Centre closures” The Daily Telegraph, 11 December 2008 “ABC Kids watch as toys carted off” News.com.au, 1 January 2009

Extraordinarily, in all of this the NSW Government has remained silent. Extraordinary because it is the NSW State Government that regulates this sector so crucial to the interests of our children and families. In NSW long day care centres are regulated and licensed by the Department of Community Services under the NSW Children and Young Persons (Care and Protection) Act 1998 and in particular by the Children's Services Regulation 2004. There is also some Commonwealth regulation of the sector. NSW regulation addresses legal requirements, the licensing model, child numbers and staffing ratios, developmental requirements and staffing standards. Both NSW and Commonwealth regulations are primarily concerned with quality of care standards rather than commercial arrangements. Quality of care must remain a focus of regulation but a strong case can also be made for expanding regulation of the sector to include financial accountability. Under current licensing arrangements undisclosed bankrupts may potentially be licensed to operate a long day care centre in NSW. There is no NSW regulation that could have stopped founder and former Chief Executive Officer of ABC Learning, Eddy Groves doing what he did. There is only one reference to financial accountability in the NSW Regulation; Reg 109. This requires the licensee to report any significant change in circumstances, including financial circumstances, to the Department within one week of the change occurring. There is no definition of ‘significant changed circumstances’. The regulation sets out: 109 Notice of significant change in circumstances of licensee If a significant change that may affect the licensee’s capacity to provide the children’s service occurs: a) in the circumstances (including financial circumstances) of the licensee of any class of children’s service, or b) in the case of a licensee that is not a natural person, in the circumstances (including financial circumstances) of a person involved in the control and management of the licensee, the licensee must give written notice to the Director-General of the change within one week after the change occurs.

The failure of the NSW Government to even acknowledge they have a role or to change the rules means it could all happen again. Eddy Groves could happen again. Another child 2

care company could go broke, families lose their child care, parents be forced to withdraw from work or worse, very vulnerable children left in risky arrangements because their parents cannot leave the workforce in what are now uncertain economic times. The size of the child centre industry and the number of families reliant on their care means ensuring the financial stability of this sector is now a key social and economic responsibility of Government. In the same way that Independent schools in NSW are closely monitored and required to provide a high level of financial accountability for the sake of the children in their care, child care providers should also be required to demonstrate their financial viability. The NSW Government has abrogated its responsibility. THE CASE FOR CHANGE Historically not-for-profit groups and local government sponsored facilities have dominated the long day care centre sector. Some government schools have long day care centres located on their properties. The finances of these groups have been relatively straightforward and parents are frequently involved in the centre’s financial management. While there is no evidence that the not for profit and community groups were or are more efficient in their financial management of facilities than commercial operators they had and have a very limited scope to change their financial circumstances, let alone to defraud or misappropriate funds. Commercial operators have tended to be small business owners often co-locating their centre within their homes. The rapid growth of the child care sector associated with the increasing participation of women in the workforce has largely been associated with commercial operators. The removal of the grants program for community based child care centres probably hastened the decline of the not for profit section of the industry but undoubtedly the increased financial contribution of the Commonwealth Government primarily encouraged the entry of commercial operators. The development of large corporate child care franchises has brought a different financial dimension to the sector that needs oversight so that commercial mismanagement does not again endanger care arrangements for very young children. The collapse of the ABC Learning Centres has highlighted the pitfalls of unregulated commercial operations. ABC Learning, under the direction of its CEO Eddy Groves, drove the rapid expansion of their business in a number of ways. These included the deployment of a vertical integration model, which enabled ABC Learning to operate its centres (and receive guaranteed income from the Federal Government) while owning only limited assets. Assets instead resided in Groves-owned or controlled supply companies to ABC Learning (including property trusts, photographic service providers, employment agencies and toy and equipment providers). In addition to this there is some evidence that ABC Learning also engaged in aggressive pricing practices at a local level, allegedly driving other small child-care operators out of business. Parents in existing child care centres were reportedly offered “fee holidays” if they joined an ABC Learning facility and fees were reduced below those of neighbouring centres until the neighbouring centre (usually a small business or husband and wife partnership) closed.

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As has now been well documented, ABC Learning engaged in financial management practices that eventually led to the financial collapse of the company and widespread distress for working families who were their clients. Despite the importance of providing children with stable child care environments to date there has been no public recognition by the NSW Government that they should have taken more interest in the financial standards of this industry, nor any attempt to regulate predatory pricing or fees in the child care sector. Surprisingly, the NSW Government has failed to take advantage of its current review of Child Care Regulations which was due to commence Stage 2 in early 2009. The review is being conducted in accordance with statutory requirements that regulations be reviewed every five years. To date DoCS published material contains no reference to the need to reform financial regulation and the Minister has been publicly silent on the matter. (Similarly to date there has been no public acknowledgement by the Federal Government that the large amount of government funding provided to the child care sector might oblige it to monitor the financial management of child care providers.) Comparison with the Schools Sector The financial operations of non government schools are closely monitored by the Education Department. Schools are required to be corporations or another legal entity approved by the Minister, they are supervised by the Education Board (which also approves their licence to conduct a school) and they are required to make their financial statements public. Clearly this is in the interests of parents and children since it enables non viable schools to be easily identified and problems addressed before children find themselves without access to education facilities. Comparison with Other Social Services Sectors The failure of the State and Federal Governments to consider financial regulation for the child care sector is in stark contrast to regulation of the aged care sector by the Commonwealth and of non government organisations contracting to the NSW Government, and DoCS in particular. These organisations are required to provide substantial financial information and the financial reporting requirements of aged care operators are notably onerous. At the state level, non government organisations providing services to the government in areas such as child protection and domestic violence advise that they are required to provide detailed financial information to DoCS and to meet extremely high standards of financial accountability. Even expressions of interest in tendering for programs require detailed applications and many organisations now employ full time application officers to coordinate this effort. The onerous nature of these reporting requirements has been criticised in the 2008 Wood Report. Other human service departments may operate similarly demanding regimes. DoCS appears to take an ambivalent view of the financial accountability it requires from those it licences and contracts with. This ambivalence significantly favours commercial operators over charities.

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Arguably financial accountability regimes could be harmonised across and within departments but at the very least the accountability requirements for commercial and notfor-profit operators should be comparable. At this stage that is not the case. The NSW Coalition takes the view that pre-school and infant children (and their families) require and deserve the same stability and accountability in their arrangements as victims of domestic violence and children under the care and protection of the state. PROPOSAL Reform A NSW Liberal/Nationals Government would reform regulation of the child care industry to ensure improved transparency of the sector and financial accountability. Financial reporting would be to a specialist financial reporting agency. The purpose of these reforms is to ensure stability in the child care sector and to reflect the same standard of stable service provision the people of NSW expect from the schools sector. In addition, stable child care arrangements are directly linked to workforce participation and to the standard of living of NSW families. While this is also true of schools it should be noted that school aged children can be left in less than ideal supervision for short periods if school arrangements change whereas the physical vulnerability of infants and toddlers demands competent supervision at all times. In order to achieve financial accountability a NSW Liberal/Nationals Government would look at introducing financial requirements at licensing as well as ongoing requirements which will be determined through expert consultation. These measures will ensure greater transparency as well as financial accountability. We will also consider having the option of limiting market concentration. This would mean that no single owner could control more than a pre-determined percentage of centres within NSW. The NSW Liberal/Nationals believe there needs to be appropriate disciplines in place and recognises that a strong case exists for refusing child care licences to those who fail to reach these standards of accountability In addition to greater scrutiny of financial arrangements, a NSW Liberal/Nationals Government would specifically outlaw predatory pricing in the child care sector. Predatory pricing is very common in sectors where there is a wide range of commercial entities operating. The child care sector, for example, ranges from large numbers of small operators with limited reserves and resources to withstand a price war to large franchises with access to considerable reserves. Aggressive pricing was one means ABC Learning employed to drive away competitors to the long term detriment of children. As the competition receded the evidence is that not only did ABC Learning fees rise but also the quality of care, including the amount of food provided to children receded. Although the Australian Competition and Consumer Commission regulates anti competitive practices nationally, the NSW Coalition recognises the educative importance of identifying this in state regulations. It is comparable to the creation of a specific offence of Domestic Violence, when historically assault would have applied, in order to highlight the seriousness of this crime. We recognise that the sector struggles under the extremely onerous regulatory regime that currently exists. We believe the current review of the regulation is an ideal opportunity to 5

remove and simplify the existing regulations. It is not, however, a reason to fail to provide adequate financial protection. This commitment to simplify regulatory red tape is commensurate with the NSW Liberal/Nationals policy. The overall regulatory on the child care sector will not increase. YOUR TURN The Liberal Nationals believe this is an important policy to take to the next state election. We are determined to work with the child care sector, families and regulators to get the fine detail worked out. In fact we believe it is so important to the welfare of families and young children we would urge the NSW Government to immediately develop appropriate rules for this vital sector. But we want to hear from you! What is your experience of child care - as a parent or worker or provider? What do you think would be the best way to address the problems we have seen and the heartbreak caused? Please contact my office: Pru Goward MP Member for Goulburn 288 Bong Bong Street, Bowral, NSW 2576 OR

PO Box 684 Bowral Tel: 4861 3623 OR

E-mail: [email protected]

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