The federal government offers a "carrot" to aged care providers to cater for special needs groups but does not check whether they are keeping that promise.
The health department has also admitted it does not monitor if providers that claim they offer specialised services for older Australians with special needs actually do so.
Aged care royal commissioner Lynelle Briggs said it was a huge issue, both in terms of the effectiveness of needs-based planning and the allocation of government resources.
"If you allocate a lot of resources to special needs groups and can't be guaranteed that those resources are then being brought to bear to support those special needs groups, then there's a serious misallocation of a lot of government money isn't there?" she said.
Senior health department official Jaye Smith said resources directed to special needs groups should be available to support them.
Mr Smith admitted there was no monitoring of whether providers allocated aged care places and funding on the basis of giving priority to special needs groups actually followed through.
"I agree it should be monitored. It hasn't been," he told the royal commission in Melbourne on Wednesday.
Mr Smith said it was a priority for the next aged care approvals round (ACAR).
"I can give the commitment to the commissioners that it is a priority for the next ACAR to make sure we have a much more robust process in place in terms of follow-up conditions of allocation for special needs groups."
Senior counsel assisting the commission Peter Gray QC described the situation as a little extraordinary, as there was a "carrot" or incentive offered to approved providers if they promise to give priority to a particular special needs group in a particular region.
"Yet there has been no follow-up at all, ever, in terms of monitoring whether the approved providers have actually been following through with that promise, is that right?"
Mr Smith answered that no systemic follow-up has ever occurred.
Providers are also able to claim on My Aged Care, the entry point for the system, that they provide services for special needs groups but the government does not check or monitor if that is actually the case.
Mr Smith said the issue was another priority for the department, given people rely on the information to make decisions about which aged care facilities to consider.
"In relation to the service finder and in relation to the way in which we have monitored priority of access for ACAR, it doesn't occur. It doesn't occur and it needs to occur," he said.
The special needs groups include people from Aboriginal and Torres Strait Islander communities or culturally and linguistically diverse backgrounds, those who live in rural or remote areas, veterans and people who are financially or socially disadvantaged.
Australian Associated Press