0501 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies regarding measuring, recognizing, re-estimating, and reporting of liabilities for loan guarantees. The Federal Credit Reform Act of 1990 (FCRA), effective October 1, 1991, divides VA’s loan guaranty commitments into two groups: those that were made before fiscal year 1992 (pre-1992) and those that were made in fiscal year 1992 and later (post-1991).

Key points covered in this chapter:

• VA will apply different accounting standards to pre-1992 and post-1991 guaranteed loan liabilities in accordance with the Federal Accounting Standards Advisory Board (FASAB) Statement of Federal Financial Accounting Standards (SFFAS) 2, 18, and 19;
• VA will recognize a subsidy expense for guaranteed loans in the year of disbursement equal to the estimated present value of cash outflows over the life of the loan minus the present value of estimated cash inflows;
• VA will re-estimate the subsidy cost allowance yearly, with any resulting adjustment recognized as subsidy expense (or a reduction in subsidy expense);
• VA will account for guaranteed loan modifications and sales in accordance with FASAB, the Office of Management and Budget (OMB), Treasury, and VA’s guidance; and
• VA will, in accordance with OMB Circular A-136, report guaranteed loan liability on the consolidated balance sheet and disclose required information in the accompanying notes.

0502 Revisions

Section	Revision	Office	Reason for Change	Effective Date
0604	Updated roles to include Actuarial Liability Governance Board (ALGB)	OFP	VA implementation of formal governance body in FY22 with oversight responsibility for VBA and VHA actuarial benefit models	May  2025
0604	Updated roles to include reorganized Office of Actuarial Services (OAS)	OFP	Actuarial responsibilities reorganized under OAS in Office of Management (OM)	May  2025
0605	Controls over Housing Models and Governance	OFP	Audit Finding-NFR 23-11, recommendations that VA refine modeling documentation and oversight policies and procedures	May  2025
0605	Controls over Housing Models and Governance	OFP	Audit Finding-NFR 24-10, recommendation that VA refine monitoring controls over model validation and verification	May  2025
Appendix B	Added new Appendix B: ALGB Charter	OFP	Updated and Reviewed Final ALGB Charter	May  2025

For a complete list of previous policy revisions, see Appendix A: Previous Policy Revisions.

0503 Definitions

Administrative Expenses ­­– Costs that are directly related to credit program operations, including payments to contractors.

Cohort – The direct loans obligated, or loan guarantees committed by a program in the same year even if disbursements occur in subsequent years.

Credit Program – A Federal program that provides loan guarantees and direct loans to non-Federal entities, (e.g., to segments of the population not adequately served by private lenders).

Default – The failure to meet any obligation or term of a credit agreement, grant, or contract.

Discount Rate – Treasury interest rates that are used to calculate the present value of the cash flows that are estimated over a period of years.

Financing Account – A non-budget account associated with each Credit Program account. The financing account holds fund balances, receives the subsidy cost payment from the Credit Program account and includes all other cash flows to and from the Government resulting from post-1991 direct loans or loan guarantees, including Treasury borrowings.

Foreclosure – A legal proceeding instituted by a loan holder, where the failure of a borrower to repay the entirety of a secured debt results in the termination of the borrower’s rights in the property (and title to the property is transferred to the holder’s successor or assign).

Guaranteed Loan Sales Liabilities – The present value of the estimated cash flows to be paid by VA as a result of the guarantee.

Liabilities for Loan Guarantee – A probable future outflow or other sacrifice of resources as a result of VA’s Home Loan Guaranty program.

Liquidating Account – A budgetary account that records all cash flows to and from the U.S. Government resulting from pre-1992 direct loan obligations or loan guarantee commitments (unless they have been modified and transferred to a financing account).

Loan Guarantee – Any guarantee, insurance, or other pledge with respect to the payment of all or part of the principal or interest on any debt obligation of a non-Federal borrower to a non-Federal lender, but not including the insurance of deposits, shares, or other withdrawable accounts in financial institutions.

Loan Guarantee Commitment – A binding agreement by a Federal agency to guarantee a loan when specified conditions are fulfilled by the borrower, the lender, or any other party to the guarantee agreement.

Marketable Treasury Securities – Securities, including Treasury bills, notes, bonds, and Treasury Inflation-Protected Securities (TIPS), that Treasury initially issues for sale to the marketplace and that can be bought and sold on securities exchange markets.

Master Servicer – The servicing entity responsible for performing all of the loan servicing functions under the Pooling and Servicing Agreements created for each Vendee Mortgage Trust (VMT) sale.

Maturity or Maturity Date – Refers to the final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid.

Measurable – A value can be reasonably estimated.

Modification – A Government action that (1) differs from actions assumed in the baseline estimate of cash flows and (2) changes the estimated cost of an outstanding direct loan (or direct loan obligation) or an outstanding loan guarantee (or loan guarantee commitment). There are two different types of modifications:

• Direct Modifications – Changes in the subsidy cost caused by altering the terms of existing contracts or by selling loan assets; and
• Indirect Modifications – Changes in the subsidy cost caused by legislation that alters the way in which an outstanding portfolio of direct loans or loan guarantees is administered.

Negative Subsidy – A subsidy cost that is less than zero. A negative subsidy will occur if the present value of cash inflows to the Government exceeds the present value of cash outflows.

Nominal or Face Value – The amount of a bond, note, mortgage or other security as stated in the instrument itself, exclusive of interest or dividend accumulations. Often referred to as the stated value or par value.

Obligation – A legally binding agreement that will result in outlays, immediately or in the future. An obligation is a legal liability of the Government against an available appropriation.

OMB Credit Subsidy Calculator (CSC) – Discounting tool issued by OMB for agencies to calculate credit subsidy costs and financing account interest for post-1991 loan guarantees.

Positive Subsidy – Positive subsidy value exists when the present value of expected cash outflows exceeds the present value of expected cash inflows.

Present Value – The current value of future cash flows.

Program Account – The Credit Program Account records the loan subsidy costs of the government that are associated with direct loans obligated and loan guarantees committed since 1992 and their related administrative expenses of the VA housing loan programs. The subsidy costs are calculated on a net present value basis. All administrative expenses are estimated on a cash basis.

Re-estimate – Estimates of the subsidy costs performed subsequent to their initial estimates made at the time of a loan’s disbursement. Per SFFAS 2, there are two different types of re-estimates:

• Interest Rate Re-estimates for differences between discount rate assumptions at the time of formulation (the same assumption is used at the time of obligation or commitment) and the actual interest rate for the year of disbursement; and
• Technical/Default Re-estimates for changes in projected cash flows of outstanding loan guarantees after reevaluating the underlying assumptions and other factors that affect cash flow projections as of the financial statement date, except for any effect of the interest rate re-estimates.

Recognize – To formally record or incorporate an item into the Agency’s financial statements as an asset, liability, revenue, expense, etc.

Subsidy Cost – Estimated present value of the cash flows from the Government (excluding administrative expenses) less the estimated present value of the cash flows to the Government discounted to the time when the loan is disbursed. Present value is derived by a computation from the Credit Subsidy Calculator (CSC), mandated by OMB Circular A-11. Subsidy values can be either positive or negative.

Systematic Methodology – An explicit and precise approach that aims to minimize bias and enhance the reliability of conclusions.

Vendee Loan – Direct loan issued to a third-party borrower for the market value of the Real Estate Owned (REO) property. VA acquires REO property from a private sector mortgage lender upon default of a loan subject to the VA Loan Guaranty Program.

Vendee Mortgage Trust Securitization Program – VA’s program authorized under 38 U.S.C. § 3720(h) that “guarantees the timely payment of principal and interest on, certificates or other securities evidencing an interest in a pool of mortgage loans made in connection with the sale of properties acquired” under chapter 37, title 38 U.S.C. The VMT program helps to reduce VA’s cost associated with servicing loans. Upon the sale of loans to a third-party investor (Trust), VMT certificates are issued pursuant to a Pooling and Servicing Agreement (PSA) which is an agreement between VA, the Master Servicer, the Program Administrator, and the Trustee. VA guarantees the full and timely payment of principal and interest on VMT certificates. VA’s guaranty is backed by the full faith and credit of the United States Government.

0504 Roles and Responsibilities

Actuarial Liability Governance Board (ALGB) is responsible for:

• Overseeing the management and evaluation of the effectiveness of various actuarial models;
• Assessing the assumptions that significantly impact VA’s actuarial liabilities recorded on VA’s financial statements and overseeing related changes;
• Ensuring oversight and adherence to industry standards in managing actuarial models:
• Establishing the overall principles and direction for the governing and administrative bodies of the Board; and
• Overseeing the effectiveness and efficiency of the governance model, including amending the composition of the Board and reviewing/adjusting governance policies as necessary.

Office of Actuarial Services (OAS) is responsible for developing, updating, and documenting systematic models; including information about assumptions and methods, summary of model output, and output for use in the cash flow model (managed by VBA). OAS also is responsible for coordinating with OF on audit corrective action plans.

Veterans Benefits Administration (VBA), Accounting Policy and Reporting Division (APRD), is responsible for reviewing the output received from VBA Credit Reform Budget and CSC models and posting journal vouchers to VA’s accounting system by fund and cohort level. APRD also reviews the historical cash flows and debt balances as well as the return of borrowing data to ensure accuracy and matching to Treasury reporting. As needed, APRD assists OFR in the reporting of loan liabilities.

VBA, Administrative and Loan Accounting Center (ALAC), is responsible for providing financial management support to VA’s housing programs by performing accounting, financial reporting assistance, voucher examining, payments, and collections.

VBA, Loan Guaranty Service (LGY), is responsible for operating and managing housing loan programs as a benefit for eligible borrowers to obtain, retain, and adapt homes.

VBA Credit Reform Staff (CRS), is responsible for calculating subsidy rates and costs for VA direct loans and loan guarantees for recording and reporting by APRD and ALAC.

0505 Policies

050501 General Policies

1. In accordance with SFFAS 2, VA will recognize and annually re-estimate loan guarantee liabilities.
2. VA will report loan guarantee liabilities and accompanying disclosures in accordance with OMB Circular A-136.
3. In accordance with OMB Circular A-11 and SFFAS 2, VA will utilize three categories of funds established by OMB to implement Credit Reform as follows:
   • Liquidating accounts for all pre- FY1992 loan activity;
   • Program accounts for OMB budgeted subsidies apportioned in the current year, plus all current year costs to administer the fund in which the loans are made; and
   • Financing accounts for all loan proprietary accounting, claims, and expense payments. Each account must distinguish all financial activity by fiscal year beginning with FY 1992 (cohort year).
4. VA will use Federal Credit Reform accounting for all guaranteed loans established October 1, 1991 and thereafter, including loans made or guaranteed prior to this date that had been substantially modified October 1, 1991 or later. The FCRA requires federal agencies to estimate the cost of extending or guaranteeing credit through federal credit programs, which is referred to as subsidy cost. VA will re-estimate subsidy costs annually to reflect both actual loan performance and changes in expected future loan performance.
5. Per OMB A-11, VA will use cohort accounting for post-1991 loan guarantees and pre-1991 loan guarantees that have been modified. Post–1991 loan guarantees remain with their original cohort throughout the life of the loans, even if they are modified. Modified pre–1992 direct and guaranteed loans are assigned to a single cohort defined by the year of modification, program, and credit instrument, regardless of the fiscal year of the appropriation. For purposes of budget presentation, cohorts will be aggregated. However, accounting and other records must be maintained separately for each cohort.

050502 Loan Guarantee Liability

1. VA will recognize a liability for pre-1992 loan guarantees committed when it is more likely than not that the loan guarantee will require a future cash outflow to pay default claims.
2. VA will record the liability for post-1991 guaranteed loans outstanding at the present value of estimated net cash outflows of the guarantee upon commitment.
3. VA will adhere to the requirements of FCRA and use the net present value method for post-1991 guaranteed loans disbursed during a fiscal year to recognize subsidy expense.
4. In accordance with SFFAS 2, the liability for loan guarantees will be re-estimated each year as of the date of the financial statements.
5. Interest is accrued and compounded on the liability for loan guarantees at the interest rate that was used to calculate the present value of the loan guarantee liabilities when the guaranteed loans were disbursed, after adjusting for the interest re-estimate. The accrued interest will be recognized as interest expense.

050503 Loan Sale Guarantee Liability

1. VA may bundle vendee and acquired loans and sell them to a third- party investor (Trust) pursuant to a sale agreement. VA guarantees that the investor will receive full and timely distributions of the principal and interest on the certificates backed by the full faith and credit of the Federal Government.
2. VA will adhere to the requirements of FCRA for post-1991 loan sale guarantees and record the guarantee for loans sold under the Vendee Mortgage Trust Securitization Program at the present value of their estimated net cash outflows to be paid by VA as a result of the guarantee.
3. When vendee loans are closed (i.e., legal ownership of the REO property has passed to the third-party borrower), VA will maintain the loan in a national loan portfolio until they are sold under the Vendee Mortgage Trust Securitization Program.
4. VA will publish planned loan sales in the President’s budget.
5. With OMB budget authority, VA will sell loans that meet the market criteria at the time of sale provided they meet an economically viable threshold. The parameters of the loan sale will fall within the range of either a minimum unpaid principal balance of all outstanding vendee loans or a maximum percent of any cohort.
6. When a borrower fails to make a scheduled principal and interest payment on any VMT loan, VA will make a guarantee payment to the VMT corresponding to the borrower’s missed payment.
7. VA will pay the remaining scheduled principal balance of a vendee loan in a VMT if such loan is foreclosed and the ensuing property sale results in a liquidation loss.

050504 Subsidy Estimates and Re-Estimates

1. A subsidy estimate will be performed when a new VA guaranteed loan is made, or an existing loan is modified. The FCRA requires the cost of loan guarantees be estimated at present value for the budget providing the basis for evaluating program performance by comparing actual accounting data with estimated budget data.
2. VA will recognize a subsidy expense for post-1991 guaranteed loans disbursed equal to the difference between the present value of estimated cash outflows over the life of the loans minus the present value of estimated cash inflows, discounted at the interest rate of marketable Treasury securities with similar maturity to the cash flows.
   1. VA’s subsidy expense components for guaranteed loans disbursed during the reporting year will be recognized separately among interest subsidy costs, default costs, fees and other collections, and other subsidy costs.
   2. VA’s total guaranteed loan subsidy expense is a combination of subsidy expense for new guaranteed loans disbursed in the current year (1 above) plus modifications to existing loan guarantees, adjustments and interest rate and technical/default re-estimates made to existing loan guarantees.
3. When a positive subsidy rate exists, VA will receive loan subsidies in advance under Federal Credit Reform, to finance expected losses on loans in the year that the loans are made or guaranteed. VA will earn interest on these subsidies along with other forms of collections to pay for future claims.
4. When a negative subsidy rate exists, VA will obligate an amount equal to the negative subsidy in the financing account. When the loan is disbursed, the financing account will pay the negative subsidy to the negative subsidy receipt account. Collections will be recorded as offsetting receipts and offset VA’s budget authority and outlays.
5. VA will re-estimate the subsidy costs each year as of the date of the financial statements to reflect the actual guaranteed loan performance and expected changes in estimates of future loan guarantees performance. The re-estimate will include both interest rate and technical/default considerations. All factors that may have affected estimated cash flows should be considered.
   1. The Office of Financial Management within VBA will perform re-estimates in November and August.
      1. The budget re-estimate in November is for the purpose of preparing budget formulation. The VBA Credit Reform staff will prepare the budget re-estimate. The Office of Budget may review the budget re-estimates. VA will submit the budget re-estimate to OMB for approval.
      2. The finance re-estimate in August is for the purpose of preparing the financial statements. Preparing reliable and timely loan guarantee finance re-estimates for the financial statements must be a joint effort between the VBA Chief Financial Officer (CFO) and the loan guarantee program office of the Veterans Benefits Administration (VBA). The Office of Financial Management within VBA will review the finance re-estimate and the VBA Deputy Chief Financial Officer within this office will approve the finance re-estimate.
   2. APRD will prepare the journal vouchers for the re-estimates and VBA Finance Center will enter them into VA’s accounting system. The re-estimate for financial statements will be recorded in September, while the re-estimate for budget formulation will be recorded after VA’s receipt of a reapportionment of the re-estimates from the Office of Budget.
6. VA will estimate and re-estimate default costs for each program on the basis of separate cohorts and risk categories. The re-estimate will consider the differences between projected and realized amounts as well as other changes in factors that can be used to predict future cash flows.
7. Default cost estimates for each credit program/category will be estimated using a systematic methodology. Individually significant accounts, considered to be at high risk, should be analyzed when making the default cost estimate.
8. VA will consider the following risk factors in estimating default costs:
9. Loan performance experience;
   • Current and forecasted international, national, or regional economic conditions that may affect the performance of the loans;
   • Financial and other relevant characteristics of borrowers;
   • The value of collateral to loan balance;
   • Changes in recoverable value of collateral; and
   • Newly developed events that would affect the loans’ performance.
10. VA will maintain a database documenting historical performance using actual payments, pre-payments, late payments, defaults, recoveries, and amounts written off to further estimate default costs.
11. VA will re-estimate interest rate costs due to changes in interest rates from those assumed in the budget preparation cycle to those prevailing during the time periods in which the guaranteed loans are actually disbursed.
12. VA will exclude costs for administering credit activities, such as salaries, legal fees, and office costs, that are incurred for credit policy evaluation, loan and loan guarantee origination, closing, servicing, monitoring, maintaining accounting and computer systems, and other credit administrative purposes, from subsidy estimates. These costs are recognized as administrative expense. Administrative expenses are not included in calculating the subsidy costs of loan guarantees.
13. When making estimates for expected collections of the loan fee authorized by 38, U.S.C. § 3729, Loan Fee, VA will consider that there are Veterans who may qualify for a loan fee waiver and thus are exempt from paying the fee.
14. VA must maintain documentation that supports the underlying assumptions used in the subsidy calculations to facilitate VA’s review of the assumptions. Acceptable sources of documentation may be found in Federal Financial Accounting and Auditing Technical Release 3 (Revised) under Appendix A: Acceptable Sources of Documentation for Subsidy Estimates and Re-estimates.

050505 Modeling Governance and Oversight

1. VA will establish a process for modeling specific assumptions regarding estimating present value of loan guarantee liabilities. This should include relevant internal controls such as adequate review and approval of the estimate by appropriate levels of authority and demonstrating reliability of the process used to develop the estimate.
2. ALGB Board and Senior Management governance and oversight of modeling will include:
   • Review of modeling governance policies to ensure adequacy for model’s use and control;
   • Validation that procedures used for modeling comply with established policies; and
   • Evaluation of security and change control procedures as well as risk assessment prior to contemplative changes to model.
3. VA’s modeling documentation will provide a detailed explanation of how the model works (model theory), allowing a new user with appropriate skill in modeling and programming to assume responsibility for the model’s use and replicate the same results with little or no outside explanation or assistance Elements of documentation contained in models, valuation reports, SOPs and experience studies include:
   • A description of the model’s purpose and design;
   • Model theory, including the logic behind the model and sensitivity to key drivers and assumptions;
   • Detailed operating procedures;
   • Data needs and directions including the embedding of calculations and the linkage among each modeling step, tab, and spreadsheet;
   • Security and change control procedures;
   • Estimate validation plans and findings of validations performed;
   • Controls over data, algorithms, and reporting frameworks;
   • Historical supporting documents used in the underlying assumptions; and
   • Results of annual lookback analysis; including an analysis of assumptions used.
4. Detailed procedures for effective modeling oversight will be drafted to include:
   • Framework and controls for overseeing/validating modeling purpose, design, activities, and tasks;
   • Clearly defined purpose, goals, and approach commensurate with overall reliance on models;
   • Establishment of standards over model validation based on model criticality and complexity; to include a lookback analysis to determine the effectiveness of the model;
   • Establishment of controls over data input and reporting requirements;
   • Annual verification of control procedures;
   • Evaluation of actuarial model effectiveness (i.e., verifying accuracy, comparison of model outputs to real-world outcomes, and assessing the model’s ability to capture financial risks;
   • Formal definition for the roles of management, staff, internal audit, and other personnel relative to model development, use, controls, and validation responsibilities;
   • Establishment of security requirements and process/estimate/model change procedures; and
   • Review and approval requirements for estimates.

050506 Modification of Loan Guarantees

1. OMB Circular A-11, Section 185, specifies that modifications to loan guarantees will result from any Government action that (1) differs from the actions assumed in the baseline estimate of cash flows and (2) affects the subsidy cost such as a change in the terms of the loan contract or legislation that provides new collection tools.
   1. VA will calculate the cost of modification as the excess of the post-modification liability of the loan guarantee over the pre-modification liability. The modification cost will be recognized as modification expense when the loan guarantees are modified.
   2. When a post-1991 guaranteed loan is modified, VA will adjust the loan’s liability book value to an amount equal to the present value of net cash outflows projected under the modified terms from the time of modification to the loan’s maturity and discounted at the original discount rate.
   3. When a pre-1992 guaranteed loan is modified VA will recognize that:
      1. A direct modification transfers the loan guarantee to the financing account and adjusts the book value equal to the post-modification liability. Any subsequent modification will be treated as a post-1991 loan guarantee.
      2. An indirect modification keeps the loan guarantee in the liquidating account. The liability of those loan guarantees is reassessed and adjusted to reflect any change in the liability resulting from the indirect modification.
   4. Changes in book value of pre-1992 and post-1991 loan guarantees from direct or indirect modification and the cost of a modification will normally differ due to the use of different discount rates or the use of different measurement methods. VA will recognize this difference as a gain or loss.

050507 Financial Reporting for Liabilities for Loan Guarantees

1. VA will report the liability for loan guarantees in its financial statements and accompanying note disclosures in accordance with OMB Circular A-136.
   Key A-136 requirements to include:
   1. VA will provide a description of program characteristics and disclose:
      • Amount of guaranteed loans disbursed in each program during the reporting year;
      • Estimated subsidy rates for the total subsidy and the subsidy components at the program level in the current year’s budget for the current year’s cohorts;
      • Events and changes in economic conditions, other risk factors, legislation, credit policies, and subsidy estimation methodologies and assumptions, that have a significant and measurable effect on subsidy rates, subsidy expense, and subsidy re-estimates; and
      • Events and changes in conditions that have occurred and are more likely than not to have a significant impact but the effects of which are not measurable at the reporting date.
   2. VA will disclose in the notes to the financial statements the reconciliation between the beginning and ending balances of the liability for outstanding loan guarantees reported on the balance sheet. The reconciliation will display activities that affect:
      • Subsidy expenses for guaranteed loans disbursed during the period;
      • Subsidy re-estimates;
      • Fees received;
      • Loans written off;
      • Claim payments made to lenders; and
      • Other adjustments.
2. In accordance with SFFAS 2, VA will use the present value measurement for financial accounting and reporting on all loan guarantees obligated or committed after September 30, 1991.

0506 Authorities and References

• United States Code (U.S.C.)
  • 2 U.S.C. §661, Subchapter III, Credit Reform
  • 38 U.S.C Part II, Chapter 20, Benefits for Homeless Veterans
  • 38 U.S.C Part III, Chapter 3701, Housing and Small Business Loans                  
  • 38 U.S.C. §3720(h)(2), Veterans Education and Benefits Expansion Act of 2001
• Federal Accounting Standards Advisory Board (FASAB) Handbook by Chapter
  • Statement of Federal Financial Accounting Standards (SFFAS) 2, Accounting for Direct loans and Loan Guarantees
  • SFFAS 18, Amendments to Accounting Standards for Direct Loans and Loan Guarantees in SFFAS 2
  • SFFAS 19, Technical Amendments to Accounting Standards for Direct Loans and Loan Guarantees in SFFAS 2
  • Federal Financial Accounting and Auditing Technical Release 6: Preparing Estimates for Direct Loan and Loan Guarantee Subsidies under the Federal Credit Reform Act – Amendments to Technical Release No. 3 Preparing and Auditing Direct Loan and Loan Guarantee Subsidies under the Federal Credit Reform Act
• Federal Credit Reform Act of 1990
• Office of Management and Budget (OMB) Circulars
  • Circular A-11, Part V, Section 185, Federal Credit
  • Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables
  • OMB Circular A-136 Revised, Financial Reporting Requirements
• Treasury Financial Manual (TFM), Volume 1, Part 2, Chapter 4700, Appendix 1, 2 and 3
• TFM, USSGL, Credit Reform Accounting Case Studies

0507 Rescissions

Volume VI, Liabilities, Chapter 6 – Liabilities for Loan Guarantees January 2022.

Appendix A: Previous Policy Revisions

Section	Revision	Office	Reason for Change	Effective Date
Various	Reformatted to new policy format and completed comprehensive five-year review and update	OFP	Ensure policy is up to date with current laws and regulations and accurate	December 2021
0603 Definitions	Updated for clarity of understanding	OFP	Improve effectiveness and clarity of the policy	December 2021
0604 Roles and Responsibilities	Clarify responsibilities for measuring, recognizing, re-estimating, and reporting of the liability	OFP	Defines specific responsibilities for various positions and organizations responsible for guaranteed loan liabilities	December 2021
0605 Policies	Updated policy statements to include Modeling Governance and Oversight standards	OFP	Properly reflect VA’s loan guarantee liability accounting and reporting requirements	December 2021
0606 Authorities and References	Added Auditing Technical Release 3 (Revised)	OFP	Enhanced support necessary for Home Loan Guaranty modeling	December 2021

Appendix B: Actuarial Liability Governance Board (ALGB) Charter

U.S. Department of Veterans Affairs
Office of Management

Actuarial Liability Governance Board (ALGB) Charter

January 30, 2025

Table of Contents

REVISION HISTORY               3
I. ESTABLISHMENT                4
II. AUTHORITY                          4
III. PURPOSE                             4
IV. GOALS                                  4
V. ALGB RESPONSIBILITIES 4
VI. BOARD MEMBERSHIP 5
  A. Voting Members   5
  B. Non-Voting Members        6
VI. BOARD FUNCTIONS        6
  A. Meetings                                 6
  B. Quorum                                   6
  C. Approvals                               6
  D. Reporting                               7
  E. Charter Amendment         7
V I. CHARTER APPROVAL     7
  IX. SIGNATURE                        7
  X. APPENDIX – ORGANIZATION CHART  8

REVISION HISTORY

Version	Date	Changes	Author
1	7/19/2022		Signed Charter
2	4/12/2024	Sections I-VIII	OFA
3	1/30/2025	Name Change, Sections 1-IX	OAS

1. ESTABLISHMENT
   This Charter establishes and clarifies the purpose, responsibilities, structure, and procedural guidelines of the Department of Veterans Affairs (VA) Actuarial Liability Governance Board (ALGB).
2. AUTHORITY
   In accordance with VA Directive 0214, Enterprise Governance Structure and Process, the ALGB is a standing cross-department governance body.
3. PURPOSE
   The charter outlines the framework for oversight of VA’s actuarial models by the ALGB. The charter defines the decisions necessitating deliberation and approval for Veterans Benefits Administration (VBA) and Veterans Health Administration (VHA) program actuarial liabilities, and other actuarial model considerations requiring attention by voting members. The charter addresses decision-making procedures, criteria for evaluating decisions, and processes for documenting final decisions. The charter does not encompass the entire spectrum of responsibilities for ALGB voting members.
   
   The accompanying ALGB Governance Manual expands upon the ALGB Charter by specifying additional procedural details and providing a comprehensive framework for organizational governance. It serves as a guide that supplies in-depth information to enhance understanding and adherence to the governing principles.
   
4. GOALS
   The primary objective of the ALGB’s voting members is to institute standardized actuarial model decision-making processes. It also aims to ensure that decisions undergo thorough evaluation by leaders and subject matter experts (SME) with relevant expertise and knowledge aligned with the specific decision context.
5. ALGB RESPONSIBILITIES
   The Board has the responsibility of overseeing the management of various actuarial models. The ALGB is responsible for assessing the assumptions that significantly impact VA’s actuarial liabilities and overseeing related changes. A key aspect of their responsibilities is decision-making, where voting members must be prepared to understand and vote on critical items that impact VA’s liabilities.
6. BOARD MEMBERSHIP
   The ALGB Executive Leadership is comprised of voting and non-voting members.

A. Voting Members
The Chair will convene and preside over the ALGB meetings; the Vice Chair will assume the Chair’s role when the Chair is absent, even when the Chair sends a proxy. If both the Chair and Vice-Chair are absent, then the proxy for the Chair will preside the meeting. However, for an ALGB meeting to proceed, the presence of either the Chair or Vice Chair (or their proxy) is required.

Chair:

• Provides executive leadership and direction for the ALGB;
• Specifies procedures and protocol for ALGB meetings;
• Delegates duties to ALGB membership and other parties as required;
• Directs the review and analysis of recommendations and provides final disposition on decisions presented to the ALGB; and
• Approves changes to the Charter; and
• In the Chair’s absence, the Vice Chair can be assigned to ‘act,’ with equal authority. The Vice Chair will also oversee meetings of the ALGB Voting Members, including cadence, agenda, and outcomes.

Vice-Chair:

• Assumes duties of Chair in the Chair’s absence;
• Provides executive leadership and direction for the ALGB;
• Specifies procedures and protocol for ALGB meetings;
• Delegates duties to ALGB membership and other parties as required;
• Directs the review and analysis of recommendations and provides final disposition on items presented to the ALGB; and
• Facilitates board deliberations by ensuring the agenda is set in advance, all issues are addressed, and all attendees can express their thoughts and opinions.

Other Voting Members:

• Recommends disposition to ALGB Chair; and
• Votes in accordance with agency priorities on matters presented to the ALGB.

Proxies for Voting Members:

• A proxy is a sufficiently senior member of their organization; and
• A proxy is sufficiently knowledgeable about VA’s actuarial liabilities and basic principles of model risks and is authorized to make decisions on behalf of their organization.

B. Non-Voting Members

Non-voting members may participate in ALGB meetings and discussions to provide input relevant to their expertise. Non-voting members include but not limited to:

Office of Actuarial Services (OAS), SMEs and other Technical Advisors

• Conduct advanced planning and analysis before content is presented to the ALGB;
• Present findings and/or recommendations;
• Respond to requests from ALGB members to address concerns within areas requiring additional information;
• Provide guidance and advice when requested;
• Set appropriate timing and prioritization of experience studies;
• Ensure compliance with the ALGB manual; and
• Periodically review and reassess the Board’s governance guidelines including the charter and make recommendations regarding any changes to the Board.

Secretariat:

• Advises ALGB members on meeting agenda topics and decisions needed, based on recommended goals and priorities each year;
• Coordinates and schedules ALGB meetings; and
• Captures decisions, action items and key takeaways through ALGB meeting minutes.

7. BOARD FUNCTIONS
   1. Meetings
      The ALGB generally meets monthly. The Secretariat collaborates with voting members to identify and establish additional topics for consideration. Monthly meetings will be cancelled if there are no agenda topics requiring discussion.
   2. Quorum
      The ALGB requires a quorum for all ALGB meetings and decisions, which consists of at least three voting members. The quorum must include either the Chair or Vice Chair or their proxy.
   3. Approvals
      The Board will make a reasonable effort to reach all decisions by consensus.
      • If a motion calls for a vote, it requires a simple majority of the voting members to pass.
      • If a majority cannot be reached (a tie vote), then the Chair or Vice-Chair will make the decision. If both the Chair and Vice-Chair are represented by proxies, then the decision must be deferred until the Chair is available to make the decision.
   4. Reporting
      All ALGB approvals and actions must be recorded and published for VA stakeholder awareness. The ALGB Secretariat will ensure timely publication of ALGB decisions.
   5. Charter Amendment
      The ALGB may amend the Charter as deemed necessary by the Chair.
8. CHARTER APPROVAL
   This Charter remains effective until modified. Proposed changes require review and approval by the Chair or his designee.
9. SIGNATURE
   /s/
   Digitally signed 01/31/2025
   Edward J. Murray
   Acting Assistant Secretary for Management and Chief Financial Officer
10. APPENDIX – ORGANIZATION CHART

Role	Position	Organization
Chair	PDAS DCFO	OM
Vice-Chair	VBA CFO	VBA
Secretariat	Executive Director	OAS
Other Voting Member	VHA Assistant CFO	VHA
Other Voting Member	VBA Deputy CFO	VBA
Other Voting Member	ADAS for Financial Audit	OF