Background

The 2003 White Paper, Advancing the National Interest, stated that the actions of nation states and their governments still have the greatest bearing on the world's security and economic environment. Australia depends on the strength of its bilateral relations around the world to advance its national interests.¹ This audit report focuses on bilateral relations.

The Department of Foreign Affairs and Trade (DFAT) is responsible for Australia's external affairs, which includes the management of bilateral relations. DFAT's work is carried out by over 3300 staff in Canberra, in State and Territory offices and in the network of overseas posts. It has over 1900 Australia-based staff, of whom over a quarter work in overseas posts. In addition, about 1400 staff are employed from local communities to work in overseas posts. The head office in Canberra is the ‘operational centre of the foreign policy making process'.² It has 11 divisions with policy responsibilities.

DFAT is responsible for implementing the Government's foreign and trade policy decisions. Implementation largely occurs through overseas posts. These include, at the national level, Australian Embassies and High Commissions.³ All overseas posts are expected to contribute to the protection and advancement of Australia's national interests, the provision of services to Australians overseas, and public diplomacy.

DFAT has overall carriage of Australia's external relations but other agencies have primary responsibility for international negotiations on a range of issues.⁴ They therefore have official interests that require the presence of their staff abroad, on a resident basis or on short-term visits. Attached agency staff at posts operate under the overall supervision and control of the Head of Mission, who is the senior representative of the Australian Government.

The objective of the audit was to assess DFAT's management of bilateral relations and to identify any scope for improvement. To this end, the audit used three bilateral relationships as case studies and examined whether DFAT developed and articulated appropriate priorities for each bilateral relationship; established appropriate strategies for achieving bilateral priorities and arrangements to monitor progress in these respects; and measured and/or assessed its effectiveness in achieving bilateral priorities, and reported appropriately on progress achieved.

Key audit findings

Planning—identifying and communicating key bilateral priorities (Chapter 2)

The identification and pursuit of bilateral priorities takes place within a broad Government foreign and trade policy framework. DFAT has annual strategic planning and review processes, which inter alia identify those bilateral priorities to be pursued in the next year.

The Post Evaluation Report (PER) results in the identification of key bilateral priorities for the year ahead for each overseas post. The Divisional Evaluation Review (DER) focuses on the overall strategic direction of the bilateral relationship. The ANAO found that key bilateral priorities are expressed in broad terms. This is because the PER and DER largely involve the fine-tuning of existing work programs. The priorities are complemented at the operational level by more detailed measures for individual issues, for example, specific objectives to be pursued in bilateral negotiations.

The ANAO found that these processes work well in identifying and approving priorities, and that there are effective arrangements for consultation within the Department.

Posts also consult with attached agency representatives in the formulation of key bilateral priorities. However, where priorities involve agencies that do not have attached representatives, the process for seeking their input was not set out. Practice varied for the posts examined, leading to the risk of gaps and omissions in coverage. Given the PER already involves seeking Australian Government agency feedback on post performance, this risk could be addressed by DFAT explicitly canvassing input for the identification of priorities.

The ANAO found that the agreed PER and DER priorities were communicated in a reasonably timely manner to posts and divisions. Managers then use a variety of mechanisms for communicating priorities to relevant staff. In recognition of the sensitivity of key bilateral priorities, their circulation is restricted.

DFAT does not require key bilateral priorities to be reflected in performance agreements. The ANAO found that the approach to including bilateral priorities, therefore, varied among the posts and divisions, ranging from full reflection of priorities in the agreements to their complete absence. More consistent reflection of relevant bilateral priorities in performance agreements would provide a more systematic basis for assessing the contribution of individuals to their achievement and enhance management for results.

Particularly at a time when the international security environment is fluid and uncertain, DFAT regularly needs to contend with the unexpected. DFAT's risk management policy recognises that DFAT encounters and manages a variety of risks on a day-to-day basis, including in the international environment. The policy also properly emphasises that some occasions and issues require a more formal risk management approach, supported by a risk management toolkit. This approach is less systematic and transparent than is usually recognised as good risk management practice.

However, the identification of challenges was not based on a transparent process in which key risks to Australian interests in each bilateral relationship, and their treatments, were systematically identified.

DFAT advised the ANAO that a more formal risk management approach in the DER and PER processes would have resource implications. It also commented that formal risk management relating to foreign and trade policy issues should remain in the domain of policy work (cable reporting, advice to Ministers etc) and should not be attributed to the PER and DER processes. This is a management prerogative.

However, the PER and DER underpin policy advising. There would therefore seem to be merit in the better integration of risk management with the PER and DER, building on existing arrangements to provide greater structure and visibility. This could be achieved with little additional effort, in view of the work already undertaken by posts to identify emerging issues.

Implementation—strategies to achieve bilateral priorities (Chapter 3)

DFAT posts and divisions at head office are responsible for pursuing the implementation of bilateral priorities. Implementing foreign and trade policy essentially involves persuading another government to follow a certain course of action.⁵ The ANAO found, for bilateral activities examined, that DFAT identified a strategy to implement each priority. For example, with regard to a priority, which had been underway for some time, DFAT developed a series of strategies designed to bring the negotiations to a timely conclusion, consistent with Government requirements.

DFAT has arrangements that serve to support early warning of action being required. These include the focus of the annual PER process on identifying emerging issues and highlighting any issues of concern. Posts also monitor developments in their areas of responsibility for their likely impact on Australian interests. DFAT has developed work practices designed to enable it to cope with the challenges arising from a rapidly evolving international environment. For example, its ‘working smarter' policy seeks to enable staff to redefine priorities as circumstances change and maintain a collective capacity to look ahead and deal pre-emptively with emerging problems. The departmental cable network underpins DFAT's response capability, with arrangements designed to facilitate the timely flow of information, including in a major national emergency.

The ANAO found, for unexpected developments examined, that DFAT Ministers were briefed appropriately and in a timely manner, using a range of the available mechanisms. DFAT also developed appropriate strategies to manage each of the developments examined in terms of effectiveness.

The ANAO found that, for the implementation of both planned bilateral priorities and unexpected developments, DFAT consulted, where appropriate, other Australian Government agencies and stakeholders in the formulation of a response. This included engaging in timely inter-departmental liaison with the relevant departments in Canberra and, where required, at overseas posts. DFAT's consultation was seen as effective by government agencies and industry groups consulted by the ANAO.

DFAT's communications system transmits tasking and reporting cables between the department in Canberra, posts and other Australian Government agencies. Through this means, overseas posts prepare cable reports on developments that are relevant to Australian interests. The ANAO found that this reporting was informative, providing its audience in Canberra with a clear picture of progress with the implementation of key bilateral priorities and the management of unexpected developments.

There are formalised distribution arrangements for cables that include operational staff, the DFAT Senior Executive and Ministerial Offices. There are a number of ways by which, in Canberra and the overseas posts, monitoring and review of progress with key priorities and response to unexpected developments occurs. DFAT implements other oversight mechanisms, on an as needed basis, in response to unexpected developments; and DFAT officers liaise with Ministerial Offices over issues judged to be of interest to them.

Assessing outcomes (Chapter 4)

Fulfilling the requirement for a practical and informative performance information framework, in particular for indicators to measure/assess the effectiveness of contributions towards outcomes, is particularly difficult for DFAT. This is because much foreign policy is driven by events outside a foreign ministry's control.

DFAT replaced the previous specific performance indicators with a reduced number of more ‘timeless and generic' indicators. However, the ANAO found that the current indicators do not have some of the key characteristics of useful performance measures. These include being specific, that is, clear and concise, measurable, and, preferably timed for maximum impact.

DFAT has also developed quantity, quality and price indicators for the relevant output. However, the ANAO found that DFAT has not established proper criteria to assess the quality of policy advice, nor for the third quality indicator on DFAT's ‘capacity to assess, analyse and advise on responses to international developments'. Sound performance management seeks to support such indicators with the necessary means of assessing them, for the benefit of management and all stakeholders. In this case, the indicators could address, inter alia, the quality and timeliness of policy advice and, in the overseas context, the quality of an overseas post's network of contacts.

The ANAO found that DFAT has appropriate mechanisms for the assessment of post and divisional performance. DFAT's annual strategic evaluation process involves, at the end of each financial year, posts and divisions making an overall evaluation of their performance against the background of the priorities set in the previous year's PER/DER process. These highlight notable achievements or setbacks, as well as providing comment on areas where, they assess, there is room for improvement. The performance reporting is succinct and factual, focusing on the role of the post or division in managing the issue in question and any outcomes achieved.

Client satisfaction is a criterion used by the DFAT Senior Executive in assessing post and divisional performance. This includes feedback from Ministers, policy and other divisions, and Heads of Mission/Heads of Post. DFAT also seeks comment on posts' performance from other Australian Government departments and agencies. Feedback for the three posts examined in this audit was consistently positive.

The DFAT Senior Executive is responsible for assessing post and divisional performance. The assessments have regard to the respective policy responsibilities of posts and divisions. The use of stakeholder feedback by the Senior Executive complements their own judgements.

DFAT reports on the effectiveness indicators for Output 1.1, Outcome 1. This includes identifying setbacks to the achievement of bilateral priorities. This reporting was descriptive, factually correct, and broadly consistent with reporting in the relevant PER.

DFAT also reports on quantity, quality and price indicators. The ANAO found that reporting against the third quality indicator, ‘capacity to respond to international developments' was not particularly informative. The relevant commentary referred to the existence of reporting but did not identify which aspects of the report addressed the indicator. DFAT will give consideration to improving the clarity of reporting, including the possible use of cross-referencing.

Overall audit conclusion

The greater part of the day-to-day work of Australia's foreign and trade policy is bilateral advocacy—working to influence foreign governments to take decisions that suit Australia's, as well as their own, interests.⁶ The ANAO concluded that overall DFAT has effective arrangements in place to manage Australia's bilateral relationships.

DFAT develops annually key bilateral priorities that are well informed, appropriately approved, and communicated to those responsible for their implementation in a reasonably timely manner. There are sound consultative processes for those Australian Government agencies with attached staff at posts to have input into the formulation of key priorities. However, consultative processes are not well defined where agencies do not have attached staff. This could be addressed by expanding the scope of DFAT's existing consultations with agencies over post performance.

There is no requirement for the formal allocation of responsibility for bilateral priorities to staff through performance agreements. Doing so would provide a more systematic basis for assessing the contribution of individuals to the achievement of key bilateral priorities and enhance management for results.

The identification of challenges, likelihoods and consequences in the PER and DER is less systematic and visible than is recognised as good practice. There is scope for DFAT to better integrate risk management in the PER and DER without involving significant additional resources.

Implementation of priorities by posts, and to some extent divisions, is supported by flexible strategies and engaging with other Australian Government agencies. Arrangements support early warning of action required and posts monitor developments for their likely impact on Australian interests. Responses to unexpected events examined were timely and appropriately scaled in terms of effectiveness.

DFAT engages in a timely manner with other Australian Government agencies in the implementation of bilateral priorities—both planned and in response to unexpected developments.

DFAT's performance information framework contains high-level measures for assessing effectiveness in achieving bilateral priorities that would benefit from strengthening, to provide greater clarity for internal management. DFAT has annual processes for measuring and reviewing the achievement of bilateral priorities. These involve reporting on achievements and setbacks and also drawing on feedback from internal and external stakeholders, which is positive overall. The achievements and setbacks identified in these processes were also reported in the relevant annual reports.

Recommendations and agency response

The ANAO has made two recommendations to the Department of Foreign Affairs and Trade aimed at enhancing risk management and the performance information framework. DFAT agreed to the two recommendations.

DFAT's overall comment was:

The department welcomes the ANAO's conclusion that DFAT has effective arrangements in place to manage Australia's bilateral relationships. The ANAO finds that the department's strategic planning and review processes work well in identifying and approving priorities, and that there are effective arrangements for consultation within the department. The department also welcomes the ANAO's findings that DFAT has appropriate mechanisms for assessing post and divisional performance.

The department notes the report's strong endorsement of DFAT's processes for achieving priorities, including its findings that DFAT: identified strategies to implement each priority; had arrangements supporting early warning of action being required; developed work practices designed to enable it to cope with the challenges arising from a rapidly evolving international environment; and developed appropriate strategies to manage each of the unexpected developments examined.

The department accepts both recommendations in this report. The department is confident that its evaluation processes are rigorous and effective and that its policy-development work takes account of all pertinent factors, including risks. At the same time, it agrees that there is opportunity to build on existing arrangements. While the department appreciates the ANAO's positive comments on the quality of its performance reporting it agrees that it can be strengthened further.

Footnotes

1 DFAT, Australia's Foreign and Trade Policy White Paper, Advancing the National Interest, Commonwealth of Australia, Canberra, 2003, p.7.

2 A Gyngell, and M Wesley, Making Australian Foreign Policy, Cambridge University Press, Cambridge UK, 2003, p.60.

3 An Embassy is the usual term for the main representative office of one country in the capital city of another. A High Commission is the main representative office of a Commonwealth country in the capital city of another Commonwealth country.

4 Management Advisory Committee, Connecting Government. Whole of Government Responses to Australia's Priority Challenges, Commonwealth of Australia, Canberra, 2004, p.26.

5 A Gyngell and M Wesley, Making Australian Foreign Policy, op cit, p.60.

6 DFAT, Australia's Foreign and Trade Policy White Paper, Advancing the National Interest, op cit, p.7.