Foreign Affairs and Trade portfolio

The objective of the Foreign Affairs and Trade portfolio is to ‘make Australia stronger, safer and more prosperous’.  Its policy priorities and key initiatives are set out in the government’s 2017 Foreign Policy White Paper.  These include renewing the Australian Government’s commitment to strengthening Australia’s relationships with its near neighbours under its ‘Pacific Step-Up’ policy. 

The Department of Foreign Affairs and Trade (DFAT) is the lead entity in the portfolio and has primary responsibility within government for providing foreign, trade and development policy advice and supporting Australians overseas in need of assistance. Its key outcomes relate to:

• the advancement of Australia’s strategic, security and economic interests through bilateral, regional and multilateral engagement on foreign, trade and international development priorities;
• the protection and welfare of Australians abroad and passport services; and
• ensuring the Australian Government’s overseas presence is secure and supported by ICT and the management of the government’s overseas property. 

At 30 June 2021, the Australian Government’s global network of overseas missions comprised 122 posts in 85 countries and 49 consulates in 45 countries. A total of 3098 staff worked in Australia, with 856 employees posted overseas. DFAT also employed 2180 locally engaged staff  in overseas missions.  Further information about the department is available from the department's website.

In addition to DFAT, there are five portfolio entities that are responsible for delivering programs to strengthen Australia’s security, promote trade and investment, share Australia’s agricultural research expertise, and grow the Australian tourism industry.

In the 2022–23 Portfolio Budget Statements (PBS) for the Foreign Affairs and Trade portfolio, the aggregated budgeted expenses for 2022–23 total $8.4 billion. The PBS contains budgets for those entities in the general government sector that receive appropriations directly or indirectly through the annual appropriation Acts.

The level of budgeted departmental and administered  expenses and the average staffing level for entities in the general government sector within this portfolio are shown in Figure 1. DFAT represents the largest proportion of the portfolio’s expenses, and of this, administered expenses of the portfolio are the most material component, representing 63 per cent of the entire portfolio’s expenses.

Figure 1: Foreign Affairs and Trade portfolio – total expenses and average staffing level by entity

Source: ANAO analysis of 29 March 2022–23 PBS.

In determining the 2022–23 audit work program, the ANAO considers previous audit and other review findings and what these indicate about portfolio risks and areas for improvement. The ANAO also considers emerging risks from new investments, reforms or changes in the operating environment.

The primary risk identified for the portfolio relates to the management and oversight of the distributed network of overseas posts. Coordinated operation is required for these posts to operate most effectively during international events such as responding to the COVID-19 pandemic.

Specific risks in the Foreign Affairs and Trade portfolio relate to governance, service delivery, and financial management.

Governance

In 2020–21, DFAT managed 122 posts across 85 countries. The complexities associated with the management and oversight of this global network of overseas posts is a key risk to the portfolio.

Other risks affecting the department as a whole, include information and data management and analysis, record keeping, and the implementation of past audit and review recommendations.

• The ANAO audit of the effectiveness of DFAT’s return of overseas Australians highlighted a need for it to strengthen its crisis management capabilities through more systematic approaches to the planning and implementation of key functions, and improvements to risk management and assurance processes. 

Service delivery

While funding allocations to DFAT have increased, challenges remain in recruiting and retaining sufficient staff with appropriate skills to support the department’s increased level and pace of activity, including managing the surge in demand for passport processing as international travel resumes. COVID-19 also continues to pose some operational risk for the department because of the need to assist Australians abroad who are affected by the pandemic, while also managing impacts on staff at overseas posts and their ability to travel.

Under the government’s two-year aid strategy – Partnerships for Recovery: Australia’s COVID-19 Development Response – significant funds have been allocated to assisting countries in the Pacific manage the health impacts of the pandemic and to support their economic recovery.  Successful engagement within the region depends on DFAT’s ability to effectively deploy and coordinate Australian Public Service employees, locally engaged staff and contractors, and to implement and oversee increasingly diverse and large-scale investments. The Australian Infrastructure Investment Facility for the Pacific (valued at $3 billion) will require effective governance and project management to ensure value for money in meeting the government’s policy objectives.

Financial management

DFAT’s risks are increased by the portfolio’s diverse operating environment and decentralised systems which affect its ability to manage and oversee operations across its network. This is evident in:

• processes for identifying and managing risks across the department which may be inconsistently applied;
• the need for strong financial management, particularly in relation to controls around payments of international development assistance, is essential to address fraud risks and inconsistent processes across different locations; and
• the need for effective management of the Australian Government’s significant overseas property portfolio and the valuation of these assets is highly sensitive to changes in the underlying assumptions.

Overview

Entities within the Foreign Affairs and Trade portfolio, and the risk profile of each entity, are shown in Table 1.

Table 1: Foreign Affairs and Trade portfolio entities and risk profile

Department of Foreign Affairs and Trade

DFAT supports Australia’s foreign, trade and investment, development and international security policy priorities. DFAT is the lead agency managing Australia’s international presence and will lead efforts to maximise Australia’s security and prosperity through implementation of the 2017 Foreign Policy White Paper.

DFAT’s total budgeted assets for 2022–23 are just over $9.5 billion, with around 48 per cent of these assets attributable to land and buildings. Total budgeted revenue is just over $2.6 billion, with 21 per cent attributable to fees and charges and 4 per cent attributable to revenue from contracts with customers. Official development assistance represents 51% of total budgeted expenses (Figure 2).

Figure 2: Department of Foreign Affairs and Trade’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 29 March 2022–23 PBS.

There are three key risks for DFAT’s 2021–22 financial statements that the ANAO has highlighted for specific audit coverage, including two that the ANAO considers potential key audit matters (KAMs).

• The valuation of the Australian Government’s significant overseas property portfolio, due to the sensitivities in changes to the assumptions supporting these valuations. (KAM – Valuation of overseas property)
• The accuracy and completeness of international development assistance, with assistance payments relying on the consistent application of DFAT’s governance framework across a geographically diverse environment. This includes a diverse range of aid program agreements with varying performance assessment obligations and significant components of the program being paid through third-party providers. (KAM – Accuracy and completeness of international development assistance)
• The accuracy of revenue, including revenue streams such as passport operations, where revenue is collected under contractual arrangements by a third party, and rental accommodation and other services provided to other government entities at overseas posts, calculated using an activity-based costing model. The model is supported by a significant volume of information related to staffing and floor-space requirements provided in annual returns submitted by each post.

Export Finance Australia

Export Finance Australia provides financing solutions for Australian exporters and interests, including overseas infrastructure development that delivers benefits to Australia.

Export Finance Australia’s total actual assets for 2020–21 were just over $2.8 billion, with almost 44 per cent of these assets attributable to loans and receivables (excluding loans to the National Interest Account) and 30 per cent attributable to investment securities, as shown in Figure 3. Interest income was $54.4 million, representing 59 per cent of total actual income.

Figure 3: Export Finance Australia’s total actual financial statements by category ($’000)

Source: ANAO analysis of Export Finance Australia’s 2020–21 annual report.

There are three key risks for Export Finance Australia’s 2021–22 financial statements:

• The valuation and classification of complex financial instruments involving structured bonds, interest rate swaps and cross-currency swaps that are significant in value.
• The valuation and impairment of loans, guarantees, and available-for-sale investments, due to the judgements and estimates applied to calculate the balances.
• The recognition of interest income earned on interest-bearing financial assets, due to the significant balance of this account.