Introduction

1. The effective management of overseas property is important to the successful operation of Australia's overseas representative offices (posts) and the achievement of Australian Government overseas objectives. Overseas properties facilitate the representational role of posts by projecting a positive image of Australia, enabling good working relationships between Australian agencies at posts, and providing safe and secure working and living accommodation for staff and their families.

2. The Department of Foreign Affairs and Trade (DFAT) is responsible for the management of the majority of the Australian Government's overseas estate, which comprises both owned and leased properties across 93 locations in 77 countries. The overseas estate includes 925 properties as of August 2010, of these 58 per cent are leased, while the remaining 42 per cent are owned. Of the 534 leased properties, there are 57 chanceries, 39 Head of Mission (HOM) residences, 407 staff residences and 31 other property types. DFAT's estimated annual rent for the leased estate in 2010–11 is $53.4 million.

3. The Australian Government's approach to the overseas estate is underpinned by the principle that government's core business excludes property ownership unless it is justified in the need to support specific requirements, or where ownership delivers the best value for money outcome.^[1] This allows DFAT flexibility to lease or own property depending on the particular property requirements, availability of suitable property and value for money considerations.

4. Under the Government's financial management and accountability arrangements, each agency is responsible for the funding and oversight of its leased property overseas. However, at an operational level DFAT, as the lead agency overseas, is responsible for the leasing of chanceries—including the sub-leasing to other agencies operating at posts under Memoranda of Understandings (MOUs)—and residences on behalf of other agencies under service level agreements (SLAs).

5. Within DFAT, the strategic management of the leased estate is shared between the Overseas Property Office (OPO) and the Corporate Management Division (CMD), while the financial and budget management of the leased estate is the sole responsibility of CMD. The day-to-day property management responsibility is devolved to individual posts, with technical advice provided by OPO on request from posts or CMD.

Audit objective

6. The objective of the audit was to assess the effectiveness of DFAT's management of the overseas leased estate. In particular, the audit examined whether DFAT:

• has effective governance, reporting and funding arrangements in place to support the sound management and oversight of the overseas leased estate;
• effectively manages overseas leased chancery and residential property on a day-to-day basis; and
• manages relationships with landlords and attached agencies effectively and adequately consults with stakeholders.

7. The audit focused on the management of the overseas leased estate, as a companion to ANAO Audit Report No.32 2009–10 Management of the Overseas Owned Estate (previous audit). The audit of the overseas owned estate included elements that are common to the leased estate, including: strategic planning; property guidance and training; management of property projects; and performance reporting.

Overall conclusion

8. Managing a leased property estate is a key task for Australian Government agencies, as property facilitates the achievement of agencies' objectives. Agencies are required to effectively match their property estates with current needs, whilst planning for future requirements and adapting to changing policy and operational requirements.

9. The Department of Foreign Affairs and Trade (DFAT) manages the majority of the Australian Government's overseas leased property estate. The diversity and geographic spread of the estate poses management challenges for DFAT as the estate comprises multiple property types—including commercial office space, representational residences, staff residences and other facilities—spread across a global network of 93 posts in 77 countries. Additionally, DFAT is presented with different leasing requirements and standards of property at each post, along with an evolving security environment. DFAT must also consider the property needs of, and provide appropriate support to, attached agencies operating at posts.

10. Within the context of this environment, the ANAO concluded that DFAT has been largely effective in the provision of leased property overseas. The basic elements for leased office and residential property are working effectively. Lease arrangements are in place between landlords and DFAT, and these arrangements are supported by adequate assurance and funding mechanisms. Management of Australia-based (A-based) officers' overseas residences is devolved to post management, providing flexibility for each post to apply leasing strategies that best suit their local leasing environment and post needs.

11. However, the audit identified some elements of DFAT's administration where improvements would strengthen the overall management of the overseas leased estate. These elements include: the review of the governance arrangements to better support the leased estate, with the intent of more clearly delineating roles and responsibilities within DFAT; and a focus on improved long-term planning for leased chanceries to better manage lease life cycles and changes to post requirements.

12. At the time of the audit, work was underway to strengthen some of the shared management elements of the overseas estates, which were identified by a previous ANAO audit of the owned overseas estate. DFAT has identified other areas for ongoing improvement in order to strengthen its management arrangements. Together, these improvement activities will require ongoing management attention so that the desired benefits are achieved.

13. Considering the findings and recommendations from the previous audit to strengthen the management of the overseas estate, and the improvement activities underway, the ANAO made one further recommendation aimed at clarifying DFAT's governance arrangements for the overseas leased estate.

Key findings

Governance arrangements

14. The governance and management arrangements for the overseas owned and leased property estates differ. The OPO has prime responsibility for the management of the owned estate, while the leased estate is shared between OPO, CMD and post management.

15. Corporately, CMD has carriage of the leased estate funding, while OPO, in consultation with CMD, has oversight of the overseas leased estate and provides technical advice. The split in responsibility for the management oversight and funding of the leased estate largely reflects historic arrangements.

16. A consequence of the governance approach is that no single area at a functional level is accountable for the overall management of the leased estate, which limits each area in exercising its functions effectively. This has resulted in leasing policies not being updated and departmental staff, particularly at posts, not sharing a clear view of responsibility structures. Additionally, responsibility for the long-term planning of leased chanceries, which covers the planning of leased chancery refurbishment and relocation options, is unclear.

17. Elements of the current approach work well, particularly devolving management responsibility for the leasing of residences to posts. The devolved approach is effective as it allows post management to adopt leasing strategies that better meet local leasing practices and provide flexibility to meet A-based officers' particular circumstances.

Planning for future needs

18. Effective long-term planning is an important factor when managing a leased property estate over a diverse network. In particular, the long-term nature of acquiring leased chancery property means long-term planning needs to occur early so that projects are scheduled for the critical points of a tenancy.

19. The ANAO previously found that the department's strategic planning for its overseas owned estate was largely reactive in nature, focusing on projects that addressed current needs. The current audit also found weaknesses in the long-term planning and decisions for leased chanceries. Decisions about chancery refurbishment or relocation were also largely reactive rather than planned. Improving the long-term planning for the refurbishment or relocation of leased chanceries would assist the departmental executive in making strategic decisions about the best allocation of limited resources.

20. In response to the overseas owned estate audit findings, the department has initiated actions to enhance its strategic and long-term planning approach for owned properties. This work also includes leased chanceries and HOM residences. These improvements, when fully implemented, should facilitate an improved awareness of chanceries' future needs and assist the department to better prioritise and schedule projects on an informed basis.

Summary of agency response

21. The proposed report was provided to DFAT for comment. The ANAO made one recommendation aimed at improving DFAT's management of the overseas leased estate. DFAT agreed with this recommendation.

22. A summary of DFAT's full response to the audit is reproduced below:

The proposed report notes that DFAT has been largely effective in the provision of leased property overseas, and that the basic elements for leased office and residential property are working effectively. The report recognises the diversity and geographic spread of the estate over 77 countries poses management challenges by virtue of the multiple property types that make up the leased portfolio, including commercial office space, representational residences, staff residences, and other facilities.

DFAT welcomes the ANAO's acknowledgement that the department has initiated actions to enhance its strategic and long term planning for both owned and leased chanceries and Head of Mission and Head of Post residences. The report further acknowledges that DFAT's devolved approach to leasing residential property is effective in allowing each overseas post to adopt leasing strategies that best meet the needs of posted officers and their families, and local leasing market requirements.

DFAT considers the report's recommendation to be constructive in identifying opportunities for strengthening DFAT's existing internal governance processes and procedures.

Footnotes

^[1] Department of Finance and Deregulation, The Australian Government Property Ownership Framework [Internet]. Department of Finance and Deregulation, Canberra, July 2005, available from <www.finance.gov.au/property/property/the-australian-government-property…; [accessed 11 January 2011].