Foreign Affairs and Trade portfolio

The Foreign Affairs and Trade Portfolio is responsible for: delivering a global network of embassies and missions and international affairs policy capability to support Australia’s interests and influence abroad. The Portfolio, which is comprised of five entities in addition to the Department of Foreign Affairs and Trade (DFAT), works in partnership across government to promote a stable and prosperous regional and global environment.

As the lead entity in the portfolio, DFAT has primary responsibility within government for providing foreign, trade and development policy advice and supporting Australians overseas in need of assistance. Further information is available from the department’s website.

In the 2023–24 Portfolio Budget Statements (PBS) for the Foreign Affairs and Trade portfolio, the aggregated budgeted expenses for 2023–24 total $8.2 billion. The PBS contain budgets for those entities in the general government sector (GGS) that receive appropriations directly or indirectly through annual appropriation Acts.

The level of budgeted departmental  and administered  expenses, and the average staffing level for entities in the GGS 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 60 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 9 May 2023–24 Portfolio Budget Statements.

In determining the 2023–24 audit work program, the ANAO considers prior-year 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 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, grants administration and financial management.

Governance

The complexities associated with the management and oversight of a global network of overseas posts is a key risk to the portfolio. The ANAO audit of the effectiveness of DFAT’s return of overseas Australians highlighted a need for the department 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. 

Recent audit activity has identified areas for DFAT to improve overall contract management, including providing clear guidance to those undertaking procurements and ensuring that risks have appropriately considered for contract arrangements. 

Service delivery

The portfolio has significant service delivery responsibilities including in relation to assisting Australians who are abroad and through processing of passport applications.

Grants administration

Significant grants administration is undertaken within the portfolio, delivered in the form of international development assistance by the department and through various programs administered by Austrade. The Australian Infrastructure Investment Facility for the Pacific, which is able to provide assistance via grants or loans, also requires effective governance and risk management to achieve value for money.

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, 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.

The ANAO’s performance audit activities involve the independent and objective assessment of all or part of an entity’s operations and administrative support systems. Performance audits may involve multiple entities and examine common aspects of administration or the joint administration of a program or service.

During the performance audit process, the ANAO gathers and analyses the evidence necessary to draw a conclusion on the audit objective. Audit conclusions can be grouped into four categories:

• unqualified;
• qualified (largely positive);
• qualified (partly positive); and
• adverse.

In the period between 2018–19 to 2022–23 entities within the Foreign Affairs and Trade  portfolio were included in tabled ANAO performance audits 10 times.  The conclusions directed toward entities within this portfolio were as follows:

• none were unqualified;
• seven were qualified (largely positive);
• three were qualified (partly positive); and
• none were adverse.

Figure 2 shows the number of audit conclusions for entities within the Foreign Affairs and Trade portfolio that were included in ANAO performance audits between 2018–19 and 2022–23 compared with all audits tabled in this period.

Figure 2: Audit conclusions 2018–19 to 2022–23: entities within the Foreign Affairs and Trade portfolio compared with all audits tabled

Source: ANAO data.

The ANAO’s annual audit work program is intended to deliver a mix of performance audits across seven audit activities: governance; service delivery; grants administration; procurement; policy development; regulation and asset management and sustainment. These activities are intended to cover the scope of activities undertaken by the public sector. Each performance audit considers a primary audit activity. Figure 3 shows audit conclusions by primary audit activity for audits involving entities in the Foreign Affairs and Trade portfolio.

Figure 3: Audit conclusions by activity for audits involving entities within the Foreign Affairs and Trade portfolio, 2018–19 to 2022–23

Source: ANAO data.

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

The Department of Foreign Affairs and Trade (DFAT) is responsible for the administration of Australia’s foreign, trade, international development and international security policies.

DFAT’s total budgeted assets for 2023-24 are just under $9.5 billion, with around 50 per cent of these assets attributable to land and buildings. Official development assistance is $3.8 billion, or 55 per cent of total budgeted expenses (Figure 4).

Figure 4: Department of Foreign Affairs and Trade’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 9 May 2023–24 Portfolio Budget Statements.

There are three key risks for DFAT’s 2022–23 financial statements that the ANAO has highlighted for specific audit coverage, including two risks that the ANAO considers potential key audit matters (KAMs).

• Valuation of overseas property, which is subject to complex estimation, judgements and a range of valuation methodologies utilised in determining the fair value of the overseas property portfolio. (KAM – Valuation of overseas properties)
• International development assistance, as there are a broad range of agreements that cover a range of geographical areas with many third-party organisations. (KAM - Accuracy of international development assistance)
• Financial information associated with overseas posts, due to the decentralised operations across the international post network, which may have differing governing arrangements and financial processes across the international post network.

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 were just under $3.4 billion, with 32 per cent attributable to loans and receivables (excluding loans to the National Interest Account) and 26 per cent attributable to investment securities. Total revenue was $99.2 million, with interest income, representing 46 per cent and the fair value movement in third party loans and guarantees attributable to 36 per cent, as shown in Figure 5.

Figure 5: Export Finance Australia’s actual financial statements by category ($’000)

Source: ANAO analysis of Export Finance Australia’s 2021-22 Annual Report.

There are three key risks for the Export Finance Australia’s 2022–23 financial statements that the ANAO has highlighted for specific audit coverage:

• The valuation and classification of complex financial instruments involving loans provided, 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.