M100 Community Association Management Exam Questions with correct Answers, Exams of Nursing

Download M100 Community Association Management Exam Questions with correct Answers and more Exams Nursing in PDF only on Docsity! M100 Community Association Management Exam Questions with correct Answers 1. Each of the following are key characteristics of community associations EXCEPT a. Mandatory lien-based economic charges or assessments are levied on each owner in order to operate and maintain the community association. b. Membership in the community association is mandatory and automatic for all owners. c. A requirement of community association ownership is serving on the board of directors. d. Certain documents bind all owners to be governed by the community association.:ANS: c. A requirement of community association ownership is serving on the board of directors. This is one of the three key characteristics common to all community associations. Members of an association are not legally required to serve on the board of directors; however, the overall success on the community is dependent upon the members' involvement its affairs. 2. True or False. The primary purpose of a community association is to provide for the governance, business, and communal aspects of the association.:ANS: True Providing for the governance, business, and communal aspects of the association is achieved by administering, maintaining, and enhancing a residential real estate development, and through the establishment of a system of property rights, binding covenants and restrictions, and rules and regulations. 3. Each of the following are basic types of residential community associations EXCEPT a. Planned community b. Townhouse c. Cooperative d. Condominium:ANS: b. Townhouse While many community associations are indeed townhouse communities, not all such developments are necessarily associations. A community association is de- fined in terms of ownership rights—not architectural style. 4. Adoption of the annual budget is an example of which of the following type of resolution? a. policy resolution b. administrative resolution c. special resolution d. general resolution:ANS: d. general resolution General resolutions involve routine events such as adoption of the annual budget. 5. True or false. The purpose of a community association's governing docu- ments is to provide for the legal structure and operation of the community.:ANS: - True The public offering statement is not a governing document; instead, it is simply a disclosure statement that provides information on the community association to prospective buyers. 11. Each of the following legal sources specify management authority and responsibilities for community associations EXCEPT a. survey data b. state statutes c. community association governing documents d. court decisions:ANS: a. survey data All three types of legal sources—state statutes, governing documents, and court decisions—specify the authority or power of different parties in a community asso- ciation and the responsibilities or duties of the different parties. 12. True or false. The basic authority in a community association lies with the developer.:ANS: False The basic authority in a community association lies with the owners. In order for the association to govern effectively the owners elect a board of directors to act on their behalf. The governing documents delegate most of the association's decision-making powers to a board. 13. Complete the following sentence; The board of directors in a community association has a to act in the best interests and for the benefit of the community as a whole. a. bond b. fiduciary duty c. ballot d. quorum:ANS: b. fiduciary duty The board's fiduciary duty has two components; (1) Board members are required to avoid conflicts of interest and acting out of self-interest. (2) They are also required to act as reasonable people in managing the association's affairs. 14. True or false. The "business judgment rule" means that if a board has exercised reasonable business judgment in making a decision, the court will generally not consider the board negligent in its fiduciary duty.:ANS: True Through judicial decision, a substantial body of law has developed concerning the standards to which directors must conform while conducting a community associa- tion's affairs. Many courts apply the "business judgment rule" to a board's actions. 15. Which of the following community association committees typically are assigned responsibilities related to elections, nominations, and architectural standards? a. standing committees b. professional committees c. ad hoc committees d. mandatory committees:ANS: d. mandatory committees A mandatory committee is one that is required by the governing documents. Mandatory committees typically are assigned responsibilities related to elections, nominations, and architectural standards. 16. True or false. The role of the professional community association manager is to make all decisions for the association and to delegate information-gath- ering and fact-finding support to the board of directors.:ANS: False The professional community association manager is charged with assisting the board of directors' decision making process by means of providing information-gath- ering and fact-finding support, implementing the decisions of the board; and admin- istering the services, programs, and operations of the community association within the policies and guidelines set by the board. 17. In which of the following forms of community association management is the association managed by the board itself or by committees under the direction of the board? a. management company b. volunteer or self-management c. association-employed manager d. municipal management:ANS: b. volunteer or self-management Self-managed community associations make up a majority of all associations in the United States; approximately 150,000 self-managed community associations currently exist in the U.S. In self managed associations, the board itself is re- sponsible for all community association functions, Careful rule making and enforcement are essential for community associations. Rules should never be passed simply to collect income for the association—they must be necessary and intended to contribute to the betterment of the community. 22. True or false. According to the general hierarchy of authority for operating community associations, rules and regulations take precedence over the articles of incorporation.:ANS: False The hierarchy of authority means that rules and architectural guidelines may not contradict or be in conflict with the legal sources that take precedence over them. Although rules and architectural guidelines are lower in the hierarchy of authority for community associations, they may clarify and expand a community's governing documents—but may not conflict with the other governing documents, such as the articles of incorporation. 23. Which of the following is an example of an architectural guideline? a. pets b. noise c. fencing d. parking:ANS: c. fencing An architectural guideline is a rule that applies to the appearance of an owner's lot or the exterior of his or her unit or improvements, such as fencing. A rule is a specific statement of required behavior whose violation carries a penalty. Pets, noise, and parking are all examples of areas that often prompt community association rules. 24. Each of the following are benefits to using the resolution process to adopt rules EXCEPT a. Provides an oral record of all rules made b. Protects owners from arbitrary board actions c. Protects the community from charges that could result in inoperable rules d. Provides for consistency in making and wording rules:ANS: There are several benefits to using the resolution process to adopt rules, as opposed to using the simpler process of making motions. Among these benefits is that it provides a formal, written record of all rules made. 25. Each of the following are sections of a resolution EXCEPT a. Authority b. Purpose c. Scope and Intent d. Self help:ANS: d. Self help The fourth component of a resolution is the specifications section (instead of self help). This section states clearly and completely what those bound by the rule will be expected to do. 26. Which of the following is not one of the basic steps in a due process procedure? a. Issue a "cease and desist" letter b. Issue a hearing notice if the violation does not end within the stated time c. Hold the scheduled hearing if the violation does not end within the stated time d. Issue a decision before a hearing is held:ANS: d. Issue a decision before a hearing is held The hearing panel should issue a decision only after a hearing is held. The hearing panel determines the facts, whether or not a rule has been violated, the penalty to be imposed, if any, and the enforcement date of the penalty, if any. The hearing panel then issues this information in the form of a decision. 27. True or false. Using alternative dispute resolution to encourage residents to comply with rules and guidelines is more costly and time consuming than going through the court system.:ANS: False Alternative dispute resolution (ADR) involves submitting a dispute to a trained, uninvolved third party for assistance with resolution. The third party's decision may be nonbonding or the third party may merely act as a facilitator in the case of a mediator. However, this approach can be a more efficient and effective way to resolve a dispute than other means. A community association might propose ADR when confronted with a difficult rule enforcement situation or the possibility of prolonged litigation. In many jurisdictions ADR is either required or encouraged before filing suit or during suit, but before trial. 28. Which of the following is an internal resource a community can use to encourage an owner or tenant to conform to community association rules? a. Relying on the local health department to determine the appropriate number of occupants in a unit By specifying the duration of a meeting in the agenda or allotting agenda items specific amounts of time, managers are helping the board to proceed with its business in a timely manner. Note that meetings that run more than two hours often degenerate into an unproductive effort. 33. In addition to a meeting agenda, board members should receive each of the following supporting materials prior to a meeting EXCEPT a. Minutes from the last meeting b. Financial reports c. Community newsletter d. Committee reports:ANS: c. Community newsletter In a properly prepared board meeting, all members should have had all the infor- mation needed for discussion before the meeting. The community newsletter is not typically an item required to conduct a board meeting. 34. True or false. It is perfectly acceptable to hold a board meeting in the home of the association president.:ANS: False If a community association does not have a meeting room, board meetings should be scheduled in public places. Avoid meetings in homes of board members, as the space will not always be adequate. Nor is a board member's home a public and neutral site that will encourage owners' attendance. 35. Which of the following is not one of the basic principles of parliamentary procedure that apply to every meeting? a. Minority rule b. Justice c. Courtesy d. Protection of Rights:ANS: a. Minority rule Parliamentary procedure recognizes a few basic principles of conduct for every meeting, including majority rule (instead of minority rule). Majority rule means that the will of the majority should decide issues. 36. True or false. A board of directors can legally conduct the business of the association without a quorum.:ANS: False A quorum is the number of members required to be present for the board to legally conduct the business of the association. In the absence of a quorum, the only formal actions a board may take are to recess, adjourn, or take measures to obtain a quorum. A community's bylaws set the quorum for a board meeting. 37. Which of the following terms regarding the process of making a motion most closely fits this definition; "to change a motion by inserting, adding, striking out, striking out and inserting, or substituting words." a. Take a motion from the table b. Second a motion c. Amend a motion d. Table a motion:ANS: c. Amend a motion To amend a motion means to change a motion by inserting, adding, striking out, striking out and inserting, or substituting words. Only the maker of the motion can amend it. 38. True or false. Personnel issues are an example of a topic that often require an executive session and are allowable by law.:ANS: True There are times when a board must hold a discussion or make decisions of a sensitive nature. Many states have so-called "sunshine laws" which limit the reasons why a governing board may go into a closed or executive session. The topics that commonly require an executive session and are allowable by law usually include personnel issues, contract negotiations and discussions, lawsuits and other legal matters, and governing document violations. 39. Complete the following sentence; A is a written means of voting when secrecy is desired. a. proxy b. residents forum c. action item list d. ballot:ANS: d. ballot Unit owners' meetings often require the use of ballots. A ballot is a written means of voting when secrecy is desired. 40. True or false. Community managers are ultimately responsible for estab- lishing, approving, and monitoring the community's budget.:ANS: False Most boards of directors are responsible for establishing, approving, and monitoring the community's budget. Although they have the power to establish a budget, most will delegate preparation authority to their manager. a. Maintaining a replacement fund meets legal, fiduciary, and professional requirements b. Maintaining a replacement fund increases the likelihood that an association will require a special assessment c. Maintaining a replacement fund equalizes the contributions of old and new owners d. Maintaining a replacement fund enhances resale values:ANS: b. Maintaining a replacement fund increases the likelihood that an association will require a special assessment Owners, especially those on fixed incomes, frequently have limited resources. They may not be able to afford the large special assessments that would be required if reserves are insufficient to cover a major replacement. Maintaining a replacement fund minimizes the need for special assessments. 46. Which of the following is an example of a discretionary line item in a community budget? a. recreational expenses b. income taxes c. utilities d. maintenance:ANS: a. recreational expenses Discretionary line items are based on owner, board, and committee desires. They are items people would like to have—given their values, lifestyle, and preferred level of service, e.g. social and recreational expenses, picnic areas. Mandatory line items, on the other hand, are based on community and owner needs. They are requirements that the community is obligated to meet, e.g. income taxes, repairs, utilities, and maintenance. 47. True or false. With historical trend budgeting, all line items are set to zero and the amount of funds allotted to each must be justified.:ANS: False With zero-base budgeting, all line items are set to zero and the amount of funds allot- ted to each must be justified. Historical trend budgeting begins with the assumption that existing line items are needed. The amount of funds allotted to each one during the current year is adjusted for expected changes in the coming year. 48. True or false. Board member liability is a potential consequence of not having a reserve study.:ANS: True Not having a reserve study can expose board members to claims of fiscal irrespon- sibility and loss of D&O insurance coverage. 49. Complete the following sentence;Utilizing a(n) means managers and boards can obtain proposals from competent reserve providers and make informed business decisions to responsibly fund their association's reserves. a. Community Insurance and Risk Management Specialist b. Association Management Specialist c. Professional Community Association Manager d. Reserve Specialist:ANS: d. Reserve Specialist CAI established the Reserve Specialist (RS) designation program to help community managers and board members identify qualified reserve study providers and to assist communities in developing their reserve study. 50. Each of the following statements regarding community association as- sessments are true EXCEPT a. Assessments penalize residents for violating association rules b. An assessment is the owner's financial obligation to the community asso- ciation during a given period of time c. An assessment for an owner's share of the common expenses is a binding legal obligation based on the community association's governing documents d. An annual assessment may be paid on a monthly, quarterly, or annual basis:ANS: a. Assessments penalize residents for violating association rules Assessments are not a penalty or fine for residents who violate association rules. Instead, assessments cover an owner's share of the common expenses, and are one of the three defining characteristics of all community associations. 51. Because a community association relies on the timely collection of assess- ments in order to meet operating expense requirements, delinquent payments may result in each of the following EXCEPT a. Property beginning to appear run-down b. A budget surplus c. Disharmony between paying owners and delinquent ones d. Essential maintenance becoming unaffordable:ANS: b. A budget surplus A payment that cannot be collected from an owner is called a bad debt. When a community association determines that a debt cannot be collected from an owner after a reasonable effort has been made, it must take a bad debt write-off. A bad debt write-off consists of recording an uncollectible debt as an expense that the association must absorb. This usually requires a resolution of the board. 57. Complete the following sentence;A is a legal claim by one party (community association) on the property of another (delinquent owner) to obtain the payment of a debt or the satisfaction of an obligation. a. foreclosure b. personal money judgment c. lien d. bad debt write-off :ANS: c. lien Placing a lien on an owner's property protects the community association's interests. It encourages payment of the debt. Among other consequences of a lien, the owner cannot sell or transfer the unit without settling the debt. The recording of a lien against an owner's unit must be authorized by a community association's applicable statutes or governing documents. 58. True or false. When a community association forecloses on a unit and it is auctioned off, the association will always get the money it is owed.:ANS: False A community association may foreclose on an owner if it thinks it can recover what it is owed. Sometimes the act of foreclosing will prompt an owner to pay what is owed—especially if the owner's mortgage payments are current. If an owner has little equity in the unit—that is, still owes most of the mortgage—the community association stands little chance of getting the money it is owed. When a community association or another creditor foreclose on a unit and it is auctioned off, the association still may not get the money it is owed. The unit must sell for a price that is high enough to pay off the delinquent assessments as well as any other debts that take precedence over the association's claim. 59. Which of the following types of bankruptcy is called a reorganization because it is designed to allow for an orderly payment to creditors that enables a corporation to continue? a. Chapter 7 b. Chapter 11 c. Chapter 13 d. Chapter 21:ANS: b. Chapter 11 Chapter 11 involves the development of a plan to pay off debts in a timely manner. Once a judge approves a plan as "fair and equitable," it is binding and discharges all debts not provided for under the plan. Creditors usually receive more of what they are owed under a Chapter 11 than a Chapter 7. However, they don't necessarily receive all they are owed. 60. Which of the following accounting methods records income when it is collected and expenses when they are paid? a. cash basis b. accrual basis c. modified cash basis d. modified accrual basis:ANS: a. cash basis A community association's financial reports will reflect one of three possible ac- counting methods. Cash basis records income when it is collected and expenses when they are paid. Accrual basis records income when it is earned (or assessed to owners) and expenses when they are incurred or acquired. Modified cash basis records income and expenses on a cash basis with selected items recorded on an accrual basis. 61. True or false. The commercial reporting method consists of preparing separate columns for operating, reserve, and any special funds.:ANS: False The fund reporting method consists of preparing separate columns for operating, reserve, and any special funds. This is different from the commercial method which combines operating and reserve activities in the same column. 62. Complete the following sentence; A occurs when expenses are greater than income. a. net income b. net loss c. net gain d. net profit:ANS: b. net loss A net loss occurs when expenses are greater than income. Net income is the amount left after deducting expenses from income. The net income or loss can be significantly different depending on whether a cash, accrual, or modified cash basis is used. 63. Which of the following is not one of the three major components of a balance sheet? association owes any tax. Further, the lack of taxable income does not eliminate the need to file. 68. True or false. Requiring a single signature to withdraw funds from an investment account is a good example of a system of internal checks and balances to protect association investments.:ANS: False Every community association needs a system of internal checks and balances to protect its investments. An good example is requiring at least two signatures to withdraw funds from investment accounts. 69. Which of the following investment objectives for community associations refers to the ease with which an investment can be converted into cash or a cash equivalent? a. safety b. liquidity c. yield d. treasury bills:ANS: b. liquidity Liquidity refers to the ease with which an investment can be converted into cash or a cash equivalent. Due to unexpected events, a community association may need access to its invested funds at times other than planned. 70. Which of the following types of exposure to loss for a community associ- ation is characterized by net losses that may involve a reduction in income or an increase in operating expenses or both? a. property exposure to loss b. liability exposure to loss c. income exposure to loss d. personnel exposure to loss:ANS: c. income exposure to loss There are four types of accidental loss to which a community association is exposed. Income exposure to loss are net losses that may involve a reduction in income or an increase in operating expenses or both. 71. Which of the following demonstrates the risk control technique of expo- sure avoidance? a. a community association rule prohibiting the use of alcohol in the club- house b. conducting weekly fire safety inspections where flammables are stored c. contracting for landscape services d. backing up all computer files and storing the backup files in a separate place:ANS: a. a community association rule prohibiting the use of alcohol in the club- house Exposure avoidance involves avoiding the circumstances that would expose the community association to certain type of loss. For example, to avoid problems with serving alcohol in the clubhouse, the community association has a rule prohibiting the use of alcohol in the facility. 72. True or false. The insurance industry is unregulated at the state level.:ANS: False The insurance industry is a highly regulated legal environment at the state level. Insurers are either admitted or non-admitted at the state level; both, if licensed, can write insurance, but only admitted insurers are eligible for state guarantee funds if the insurer becomes insolvent. Non-admitted insurers are often called Excess & Surplus (E&S) Lines insurers. The insurance industry is highly regulated at the state level in terms of policy forms and rates, claims practices, financial operations, and other basic business practices. 73. True or false. The American Agency System is comprised of employees of a single insurance company who only place the insurance of that company, such as Allstate, Farmers, Nationwide, and State Farm.:ANS: False The American Agency System is comprised of insurance agencies which place insurance for more than one insurance company. Insurance companies who par- ticipate in this system include Aetna, Chubb, CNA, and Travelers. The Direct Writer System is comprised of employees of a single insurance company who only place the insurance of that company. Insurance companies who participate in this system include Allstate, Farmers, Nationwide, and State Farm. 74. Commercial package policies contain all of the following EXCEPT a. common declarations b. a selection of forms c. claims made coverage d. glossaries:ANS: c. claims made coverage Community associations purchase commercial package policies (CPP), sometimes called "package policies," which combine property and liability insurance—and pos- sibly other insurance coverages. All commercial package policies contain common declarations, common policy conditions, a There are certain important things to consider when filing insurance claims. Included among these are that every insurance contract has its own requirements for filing claims, any possible claim that could have an adverse economic impact on the community association should be reported to the insurer, claims may require the filing of formal proofs of loss, and the preservation of life and property are paramount concerns in any insurance contract. 80. Complete the following sentence;For a community association, is the process of operating, maintaining, repairing, and replac- ing common property. a. preventative maintenance b. facilities management c. maintenance record d. scheduled replacement:ANS: b. facilities management Facilities management is the process of operating, maintaining, repairing, and replacing common property, and for a community association, that includes the common elements or areas. 81. True or false. One of the goals of maintenance for a community association is to limit injury to residents, guests, and employees.:ANS: True Maintenance has three major goals in a community association. These include to meet the needs of the individual residents, to preserve and enhance the common property, and to limit injury to residents, guests, and employees. 82. Each of the following include steps in establishing a maintenance system for a community association EXCEPT a. assign blame to staff not adequately fulfilling maintenance responsibilities b. develop maintenance management controls c. analyze your assets' maintenance needs d. evaluate your maintenance system and efforts:ANS: a. assign blame to staff not adequately fulfilling maintenance responsibilities There are five steps in establishing a maintenance system for a community associ- ation. These involve developing maintenance management controls, identifying the physical assets to maintain, analyzing your assets' maintenance needs, establishing five basic maintenance programs, and evaluating your maintenance system and efforts. Assigning blame to staff not adequately fulfilling maintenance responsibilities is not included among these steps. 83. Which of the following is not an example of a maintenance management control? a. work orders b. charts of information c. response forms d. public offering statements:ANS: d. public offering statements A management control is any means used to track, record, remind, or command attention. Usually these means are forms or documents. Examples of maintenance management controls include checklists, charts of information, calendars or sched- ules, records of actions taken, inventories, work orders, request forms, and response forms. Effective maintenance cannot occur without management controls. The public offering statement is simply a disclosure statement that provides information on the community association to prospective buyers. It is also mandated by state statute. 84. True or false. The declaration or master deed often includes a maintenance schedule for particular assets.:ANS: True Managers should research legal documents to identify the physical assets their community association is responsible for maintaining. State statutes, board reso- lutions, and governing documents all often discuss maintenance of physical assets. In particular, the declaration or master deed will frequently include a maintenance schedule for particular assets. 85. Complete the following sentence;The typical management control used to identify physical assets and their maintenance needs is a(n) . a. inspection report b. inspection checklist c. maintenance record d. inventory:ANS: d. inventory The typical management control used to identify physical assets and their main- tenance needs is an inventory. This is a record of all real and personal physical property owned and maintained by the community association. Inventories usually record date of purchase, warranty, quantity, description, original installer/builder or service contractor, extended warranty and provider, cost, special maintenance needs, and estimated replacement data. previous year, reviewing all maintenance work orders, physically inspecting the property, and visiting other similar community associations to obtain a first-hand comparison or self-check. 90. True or false. A contract is an agreement between two or more parties, enforceable by law, by which each party promises to do, or not to do, some- thing.:ANS: True Management of a community association's resources frequently involves the use of contracts to obtain the products and services required. A contract is an agreement between two or more parties, enforceable by law, by which each party promises to do, or not to do, something. Whenever a community association enters into a contract, it is binding itself both legally and financially. Therefore, as a community association manager, you must assist your community to enter contracts as carefully as possible—seeking legal or technical advice whenever necessary. 91. When deciding whether to have staff members or a contractor perform a task, a manager should consider each of the following EXCEPT a. supervision b. expertise c. number of people d. retirement plan contributions:ANS: d. retirement plan contributions When deciding whether to have staff members or a contractor perform a task, a manager should consider the number of people, expertise, supervision, and availability. If a manager tries to stretch his or her people too thin, there is the danger of demoralizing the staff and delaying completion of all tasks. Always consider the possible "costs" of using inadequately trained people to do a job. Be realistic about the amount of supervision that will be necessary and whether you or anyone else on site can provide it. 92. True or false. When deciding whether to have staff members or a contractor perform a task, a manager should consider where tools, equipment, and supplies will be stored—and the liability involved.:ANS: True A manager is responsible for ensuring that all supplies are stored and labeled in accordance with O.S.H.A. standards. In this respect, the manager should be concerned with security and safety issues and seek to avoid theft and accidents. Depending on the tools, equipment, and supplies involved in a task, an association may not be able to securely and safely store them for the duration of the project, and may wish to instead use a contractor. 93. A bid request or request for proposal (RFP) should include each of the following EXCEPT a. vague instructions about the products or services requested b. a request for information about the contractor that will help the association evaluate the contractor's ability c. information about the association that the contractor will need in order to prepare a bid d. information about work conditions:ANS: a. vague instructions about the products or services requested A bid request or request for proposal (RFP) is an announcement that an organization is interested in receiving proposals for a particular project. Among other things, the bid request or RFP should include detailed instructions about the products or services requested (bid specifications). All contract terms should be included in the bid request. This will help the association avoid a situation where the successful contract bidder receives a written contract whose terms may not be acceptable to the contractor. 94. True or false. The bidding process and requests for proposals should be used primarily for smaller jobs or purchases of one-time services:ANS: False Because of the amount of effort the bidding process requires of both the community association and the bidders, it should be used primarily for larger jobs or purchases or for on-going services, such as lawn maintenance. If the bidding process will be needed, a manager should confer with the board to determine the minimum size of a contract that requires competitive bidding. 95. True or false. A good resource for identifying potential contractors are referrals from supply firms doing business with the community association.- :ANS: True A manager can obtain the names of potential contractors for a specific job from referrals from supply firms doing business with the community association. Before a manager sends a contractor a bid request, he or she should call first to see 99. True or false. The manager should sign all contracts on behalf of the community association.:ANS: False The president and/or secretary of the community association should sign contracts on its behalf. The manager should not sign a contract on the community association's behalf, as he or she is not the party entering the agreement—the community association is. 100. Community association employees are obligated to do each of the follow- ing EXCEPT a. possess the skills needed to perform assigned tasks b. use reasonable care in performing assigned tasks in order to protect the community's assets and interests complete assignments in conformity to performance standards within a rea- sonable time frame d. participate in the association's health insurance program:ANS: d. participate in the association's health insurance program An effective human resources management process helps both management and employees to fulfill their basic obligations to one another. Management is obligated to provide fair pay for services received, a safe work environment, and proper supervision. In turn, employees are obligated to possess the skills needed to perform assigned tasks, use reasonable care in performing assigned tasks in order to protect the community's assets and interests, and complete assignments in conformity to performance standards within a reasonable time frame. 101. True or false. If a community association has just one part-time employee, it doesn't need a written personnel manual or employee handbook.:ANS: False Even if a community association has just one part-time employee, it should have a written set of policies and procedures that define the relationship between the community association and the employee and that explain the rights and respon- sibilities of both the employer and the employee. The content and wording of any manual or handbook have legal ramifications. As a result, a personnel specialist or attorney should be directly involved in the adoption of a personnel manual or employee handbook. 102. The federal government prohibits discrimination against otherwise qual- ified people for each of the following characteristics EXCEPT a. religion b. gender c. skill d. race and ethnicity:ANS: c. skill The federal government prohibits discrimination against otherwise qualified people based on race and ethnicity, color, national origin, age, gender, religion, pregnancy, and disability. Statutes, regulations, and case law at all three governmental levels prohibit discrimination in hiring, promotion, dismissal, compensation, and work- ing conditions based on specific personal characteristics. Community associations should be encouraged to recruit and hire employees whose skill sets most closely match that of the position. 103. True or false. Exhibiting and encouraging preferential treatment of em- ployees is a great way to avoid employee claims of discrimination.:ANS: False The best way to avoid employee claims of alleged discrimination is to avoid any kind of preferential treatment of employees, make all employment decisions based on bona fide job requirements, and document the basis for each employment decision. 104. True or false. A community association employee who supervises other staff members is automatically classified as salaried (or exempt).:ANS: False One major source of confusion for community association managers is whether employees who supervise other employees should be salaried (exempt) or hourly (non-exempt) workers. A typical example is the maintenance supervisor who picks up the work orders, supervises a few maintenance workers, does the maintenance work with them, and reports to the community association manager. Many asso- ciations erroneously consider this position a salaried one because the person is supervising other employees. 105. Which of the following federal laws regulate working conditions, special- ized training, safety equipment, the posting of warnings related to products and work site conditions, and the reporting of accidents? a. Fair Labor Standards Act b. Occupational Safety and Health Act c. Federal Insurance Contributions Act d. Child labor laws:ANS: b. Occupational Safety and Health Act progressive discipline include stealing, fighting, substance abuse on the job, illegal actions, and sabotage. If a manager is concerned about a dismissal, he or she should consult the community's attorney or personnel specialist. 110. 55 and older community:ANS: Must have one person who is 55 years of age or older living in at least 80% of its occupied units. The community must be designated "55 and older" to qualify as this type of housing that legally prohibits children and limits occupancy to a certain age span. The designation process involves submitting applications and obtaining approval before any enforcement of the ages of residents commences. Approval from the Department of Housing and Urban Development (HUD) must be received before construction begins. 111. Abstention:ANS: Is to not cast a vote. Board members should abstain from voting only for clearly stated reasons such as a conflict of interest or ignorance of the matter at hand. 112. Acceleration:ANS: The collection of all assessments due through the end of the fiscal year. Acceleration is a technique used to collect assessments from habitually delinquent owners. 113. Accrual basis of accounting:ANS: Records revenue when it is earned and ex- penses when they are incurred. It provides an accurate picture of the association's financial condition. GAAP (Generally Accepted Accounting Principles) requires the use of accrual accounting. 114. Action item list:ANS: A list of actions to be taken before the next board of directors meeting as a result of decisions made at the current one or between meetings. An action item list contains the decisions to be implemented together with the names of those assigned implementation responsibility. Excel, Google Docs and Microsoft Outlook Tasks may be useful programs for helping you compile your action item list. 115. Actual cash value (ACV):ANS: ACV is the depreciated value of an item, commonly used in property insurance coverage. 116. Ad hoc committee:ANS: This committee's purpose is to deal with a one-time issue and make recommendations to the board within a specific time frame. The board should use a resolution to establish an ad hoc committee and clearly state the charge and expected outcome to the committee. Ad hoc committees may be formed to review parking regulations, develop investment guidelines, or to renovate a lobby, for example. 117. Advertising injury:ANS: Advertising injury provisions in commercial general liability insurance (CGL)include language providing coverage to the community association with respect to damages resulting in "misappropriation of advertising ideas or style of doing business" or "infringement of copyright, slogan, or title." Community associations with newsletters, directories, and websites that contain advertising and use online, magazine or newspaper articles without reprint permission have this exposure. 118. Agenda:ANS: An agenda is more than an announcement of the order of business for a meeting. It is a meeting management tool. Meeting agendas follow a standard format, largely based on parliamentary procedure. 119. Aggregate amount:ANS: The total amount that the insurer will pay out under an insurance policy. This is a common feature of liability insurance policy. 120. Agreed amount endorsement:ANS: Provides for an agreed upon limit of property insurance. An "agreed amount" endorsement can also suspend the coinsurance clause. Coinsurance is a standard element in most property policies that obligates the insured to maintain a certain amount of property insurance on the entire property or per structure, based on a stated percentage, usually 80% - 90%. If the insured does not maintain this percentage, the insured will not be reimbursed for the full loss of the property. 121. Alternative dispute resolution (ADR):ANS: An effective way to resolve alleged violations. It involves submitting the alleged violation to a disinterested third party who helps the parties reach an amicable solution. This person is not a judge or an expert in community association law, but can assist in the resolution of the alleged violation. 122. Appeal:ANS: An appeal is a request for a review of a case by a higher authority—if permitted by the governing documents, resolution or state statute. For example— if the hearing panel is a committee, the board of directors acts as the higher authority. If the board of directors is the hearing panel, the alleged rule violator must appeal to an authority outside the community association—for example, alternative dispute resolution. 123. Arbitration:ANS: A process in which a third party—called the arbitrator—renders a decision as to the respective liabilities of all parties. The object is not to reach a settlement; instead the arbitrator ultimately makes a ruling. It is an adversarial process that results in the same "win-lose" or "lose-lose" that you would see in litigation. Arbitration can be binding or non-binding. A binding arbitration typically cannot be appealed. Once the decision is 131. Audit:ANS: An examination of the accounting records and procedures of an organi- zation by a certified public accountant (CPA) for the purpose of verifying the accuracy and completeness of financial records. An annual audit may be required by your community association's governing documents and/or your state's statutes. External verification of the accuracy and completeness of your community's financial records is a sound business practice. 132. Bad debt write-off:ANS: When a community association determines that a debt cannot be collected from an owner after a reasonable effort has been made, it should write off the debt. A bad debt write-off consists of recording an uncollectible debt as an expense that the association must absorb. This usually requires a resolution of the board. 133. Balance sheet:ANS: A summary (or snapshot) of the financial condition of the community association at a specific point in time. It provides information as to how things are on a certain date. A balance sheet summarizes what your community association owns, what your community association owes, and the "net worth" of the association. It is called a balance sheet because what the community association owns (assets) and what it owes to others (liabilities and members equity) must balance out. A balance sheet typically is prepared on a monthly basis to allow the board of directors and manager to carefully monitor the association's finances. 134. Ballot:ANS: A written means of voting when secrecy is desired. Ballots may be used for election of new board members and to approve a special assessment, for example. 135. Baseline funding:ANS: Establishing a reserve funding goal of keeping the reserve cash balance above zero (never purposefully running out of money or having special assessments). This is the most aggressive methodology, characterized by lower (typically) reserve contributions and reserve balances. This funding plan is also the riskiest, with a greater potential for special assessments and/or bank loans when things do not go according to plan. 136. Bid request:ANS: Alternative term for invitation to bid or request for proposal (RFP). The bid request or RFP is an announcement that an organization is interested in receiving proposals for a particular project. 137. Bid specifications:ANS: Detailed instructions about the products or services re- quested in the RFP packet. All contract terms should be included in the bid request. This will help the association avoid a situation where the successful contract bidder receives a written contract in which terms may not be acceptable to the contractor. 138. Board liaison system:ANS: Directors are assigned to certain committees to ob- serve and report back to the board on activities and committee dynamics. Associ- ations that use the board liaison system occasionally have directors that need help distinguishing their observation role from their role as a committee chairperson. The committee chairperson runs the committee while the director acts as a non-voting advisor and observer. Having a volunteer other than a board member chair a com- mittee provides that volunteer with an opportunity to learn or improve on leadership skills that will enable him or her to later serve well on the board of directors. 139. Bodily injury (BI):ANS: An insurance term indicating some type of injury to a person. For example, a slip-and-fall on a crumbling sidewalk could cause bodily injury. Commercial general liability insurance (CGL) covers against bodily injury. 140. Bond:ANS: Bonds are an investment option for community associations seeking to generate additional revenue over time. Bonds can yield more or less than their stated rate of interest. Because the prices at which bonds are bought and sold fluctuate in response to current interest rates, the community association may pay more than the face value of a bond if its stated rate of interest is attractive to buyers. 141. Budget:ANS: An annual financial plan for an organization. A budget provides an estimate of a community's revenue and expenses for a specified period of time. It is the first step in managing your community's financial operations. A budget establishes what services and programs the community will provide, when they will be done, and how they will be done. In other words, a budget reflects the board's policy decisions about what will be accomplished and what will not be accomplished during the budget period. 142. Building ordinance insurance:ANS: Type of insurance coverage available by en- dorsement to a standard commercial property policy to insure against loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. This protection has three components; contingent liability, demolition, and increased cost of construction. 143. Business ethics:ANS: Knowing what is right or wrong in the workplace and doing what is right. Business ethics applies to the delivery of products or services, and to our relationships with customers, employers, vendors, and colleagues. 144. Business income insurance:ANS: This insurance covers the loss of certain types of business income. It can be used to cover rental income for handling alleged rule violations. A "cease and desist" letter should be sent by certified mail to the owner and contain:ANS: 1.Specific description of the alleged violation 2.The action required to resolve the alleged violation 3.A specific time within which the alleged violation must be corrected 4.The penalty (sanction) which may be imposed after a hearing if the alleged violation is not corrected within the stated time (specified by state statute, your governing documents or board resolution) 150. Certificate of deposit (CD):ANS: CDs are an investment option for community associations seeking to generate additional revenue over time. When a CD is reinvested together with its accumulated interest, the ultimate yield will be higher than the stated rate of interest. 151. Certificate of insurance:ANS: A document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. More specifically, the document lists the effective date of the policy, the type of insurance coverage purchased, and the types and dollar amount of applicable liability. 152. Chapter 11 bankruptcy:ANS: Chapter 11 bankruptcy is called a re- organization because it is designed to allow for an orderly payment to creditors while enabling a corporation to continue to operate. Chapter 11 involves the development of a plan to pay off debts in a timely manner. Once a judge approves a plan as "fair and equitable," it is binding and discharges all debts not provided for under the plan. Creditors usually eventually receive more of what they are owed under a Chapter 11 than a Chapter 7. However, they don't necessarily receive all they are owed. 153. Chapter 13 bankruptcy:ANS: Chapter 13 is used to reorganize personal or non- corporate debt. A plan is submitted to a judge for paying off all or some of the debt over a specified period of time while waiving other debt that may have been incurred prior to filing for bankruptcy. Chapter 13 establishes a payment plan detailing the amount that must be paid and the time period for repaying it. Creditors do not have to agree to the plan. As with Chapter 11, a creditor has more of a chance of eventually being repaid under Chapter 13 than Chapter 7. 154. Chapter 7 bankruptcy:ANS: Chapter 7 is called straight bankruptcy or liquidation. It involves the:ANS: 1.Prompt conversion of all the individual's or corporation's non-exempt property to cash 2.Payment of creditors to the extent possible The law establishes the order in which creditors are paid, and the percentage of debt that is paid. Where the community association is in the order of creditors will affect whether it is paid what is owed and, if so, how much. Typically, an association receives nothing or a very small percentage of the amount it is owed when an owner files Chapter 7. 155. Chart of accounts:ANS: An organized list of the titles, descriptions, and assigned numbers of all accounts in an organization's general ledger. The assigned number helps locate the account, and the title describes the purpose of the account. Man- agement companies should retain a master list of general ledger account numbers to make it easy for managers and accounting staff to note the appropriate account number. For example, the general ledger account number for grounds maintenance should be the same for every community. 156. Claims made coverage:ANS: Whatever insurance company is insuring the asso- ciation when the claim is made will cover the loss even though the wrongful act may have occurred when another carrier was insuring the association. Directors and officers liability insurance often incorporates "claims made" coverage 157. Code of ethics for management:ANS: CAI has developed a code of ethics for management that applies to manager members and member companies who have achieved specific credentials (CMCA, AMS, LSM, PCAM, AAMC). The code sets forth the general and technical standards for integrity and objectivity, professional courtesy, conflict of interest, use of client funds, and limitations of practice. All community managers should follow this policy to ensure their duties to the client are met. CAI has also adopted codes of ethics for Reserve Specialists (RS), Community Insurance and Risk Management Specialists (CIRMS), and association board members. 158. Coinsurance:ANS: A standard element in most property policies that obligates the insured to maintain a certain amount of property insurance on the entire property or per structure, based on a stated percentage, usually 80% - 90%. If the insured does not maintain this percentage, the insured will not be reimbursed for the full loss of the property. 159. Commercial general liability insurance (CGL):ANS: Insurance coverage against wrongful acts that lead to property damage, bodily injury, personal injury, or adver- tising injury claims.. For a community association to be held liable, a civil legal claim must be brought against it because of a legal wrong it is alleged to have directly committed or for which it is supposedly responsible. Wrongful acts that do not lead to property damage, bodily injury, personal injury, or advertising injury claims could be covered under Directors and Officers liability insurance. 160. Commercial reporting method:ANS: Most community associations use the com- mercial reporting method for their interim financial reports. The commercial method combines operating and reserve activities in the same implementing the decisions of the board; and administering the services, programs, and operations of the community association within the policies and guidelines set by the board. 166. Comparison to budget:ANS: Comparing the community's actual revenue and ex- penses with its planned or budgeted revenue and expenses. This is more meaningful when the budgeted amounts are shown in the months the revenue or expense occur, rather than simply dividing the total expense by 12 and showing 1/12 each month. For example, snow removal would show in winter months, pool lifeguard in summer months, etc. When you compare actual figures with budgeted figures:ANS: 1.Identify all significant differences or variances between actual and planned figures 2.Determine the reasons for the differences and notify the board 3.Advise the board of any necessary corrective action it needs to take as soon as possible 4.On accrual basis reports, the budgeted assessment revenue should equal the actual assessment revenue 167. Compilation:ANS: A presentation of financial statements by a certified public ac- countant (CPA) without the assurance that the information conforms to Generally Accepted Accounting Principles (GAAP). When a community association hires a CPA to perform a compilation, the CPA cannot make any claims about the accuracy and completeness of the financial statements. This differs from an audit and review, which provide a higher level of detail about the association's financial condition. 168. Condominium:ANS: A type of community association in which:ANS: 1.The owner owns the unit. 2.The owner has an undivided interest in the common areas. Each owner owns a percentage of the common elements— which consist of everything except the living units, for example, a pool or lobby. The community association itself owns no real estate as an association. 169. Conflict of interest:ANS: A situation in which an individual's duty to one leads to the disregard of a duty to another. Be sure to take the following steps to disclose a conflict of interest.1. Make full and complete written disclosure of all relevant facts to your board prior to any dealings which may be, or appear to be, a conflict of interest for you. 2. Obtain specific authorization from the board in writing before proceeding with any action which may present a conflict of interest. This authorization should also be recorded in the minutes of a board meeting. 3. Even after full disclosure, avoid any actions which are—or may be perceived as—a conflict of interest. Individual owners may not be aware of all the facts and may view your actions as improper. 170. Contingent liability:ANS: Covers the value of any undamaged portion of a building which may have to be replaced because it is impossible to tie in the remaining section to the rebuilt section because of changes in building codes over the years. Contin- gent liability is a component of ordinance/law insurance, which brings construction to current code so a building can be eligible for an occupancy permit. 171. Contract:ANS: A contract is— 1.An agreement between two or more parties 2.En- forceable by law 3.By which each party promises to do, or not to do, something Whenever a community association enters into a contract, it is binding itself both legally and financially. Therefore, as a community association manager, you must assist your community to enter contracts as carefully as possible— seeking legal or technical advice whenever necessary. 172. Contractual transfers:ANS: This involves entering into a contract that will, among other things, transfer the community association's legal responsibility for any loss. An example would be contracting for landscape services, instead of using com- munity association employees, and incorporating clauses such as a hold harmless provision in the contract, or the association contracts with a community association management company. Contractual transfers are a type of risk control activity. 173. Cooperative:ANS: A type of community association in which:ANS: 1.The owner owns stock or membership in the cooperative corporation. 2.The owner has a lease or occupancy agreement for the unit. 3.The association (corporation) owns the building and the units. For most cooperatives, the community association owns all of the real estate as a not- for profit corporation. However, there are a few cooperatives set up as for- profit entities. An owner in a cooperative has two legal relationships—one as someone who shares in ownership of the corporation and one as someone who holds a lease for a living unit. Another name for a cooperative is a stock cooperative. 174. Covered cause of loss:ANS: An insurance terms that refers to the losses (perils) that are covered by an insurance policy. 175. CPA (certified public accountant):ANS: Community association governing docu- ments and state statutes may require that an independent certified public accountant be involved in preparing a community's annual reports (audit, review, or compilation). A CPA is certified by a state examining board as having fulfilled the requirements of state law. These requirements usually include a certain amount of experience, passing the CPA exam, and quality or peer review. Community association year-end reports prepared by CPAs must meet standards for both the community expenses. A continued or increasing decrease, however, is an indication of an inadequate level of assessments or overspending, and a signal for board action. 182. Demolition:ANS: One of three components of Ordinance/Law insurance. Covers the cost of demolishing any undamaged portion of a building. The basic property insurance pays for demolishing the damaged portion of the building. The other two components of ordinance/law insurance are contingent liability and increased cost of construction. 183. Directors & Officers (D&O) liability insurance:ANS: This insurance is designed to pay for damages arising from wrongful acts that do not lead to property damage, bodily injury, advertising injury, or personal injury. Examples of "wrongful acts" include the failure to file taxes, collect assessments, maintain replacement reserves, or deliver core services to its residents (member/owners and tenants). For instance, the board or the community association may be at fault for not fixing hand rails (someone falls and is hurt), but the result of that wrongful behavior led to bodily injury (BI), which is insured in the CGL and not in the D&O policy. On the other hand, D&O will defend the board and may pay for any settlements or judgment if an owner sued the association for not uniformly enforcing the governing documents. An insured should specifically include the community association, committee members and employees, as well as board directors and officers, whether they are elected or appointed and whether they are past or current. 184. Discretionary budget line items:ANS: These are items based on owner, board, and committee desires. They are items people would like to have—given their values, lifestyle, and preferred level of service, e.g., social and recreational expenses, picnic areas, etc. 185. Due process procedure:ANS: A formal rules-enforcement process designed to protect the rights of all parties involved. There are several benefits to using a due process procedure to enforce community association rules:ANS: 1.Alleged violations all handled the same way 2.Courts recognize and value the procedure 3.Majority of violations can be resolved 4.Non- threatening environment furthers voluntary compliance 5.Provides opportunity to explore alternative means of resolution 186. Duty of care:ANS: In the management of a community association, both the board of directors and the community manager have a duty to the membership. This is referred to as the duty of care and duty of loyalty. Duty of care requires the party acting on behalf of another to exercise the skill and care that a reasonable person would exercise under similar circumstances. For example, if an unprepared manager makes a recommendation to the board, that would be failing to exercise reasonable care. Failing to fulfill the duty of care can be considered negligence. 187. Duty of loyalty:ANS: Duty of loyalty is also known as fiduciary duty. A fiduciary is any party that administers the assets of another. This duty requires the fiduciary to act in the other party's interests when administering its assets. The fiduciary must avoid serving its own interests or those of third parties at the expense of the asset owner's interests, which in this case, would be the community association. Failure to maintain a duty of loyalty is unethical and considered a conflict of interest. For example, if you select a lawncare provider because they promise you a referral bonus, which you plan to keep for yourself, that is considered serving your own interests instead of the interests of the community, and therefore is a conflict of interest. 188. Electronic data processing (EDP) insurance:ANS: This insurance may be needed for computer equipment, networks, websites, security systems, protection from hackers, and similar information technology exposures. Coverages vary so much that the community association needs to carefully evaluate its exposures and the ability of the EDP to meet those potential exposures to loss. EDP is one of the common insurance coverages for property exposures to loss. 189. Emergency services maintenance:ANS: This is the ability to respond to unpre- dictable maintenance problems (for example—sewer backups, elevator failures, roof leaks, frozen pipes, etc.). The key to a successful response to an emergency is to anticipate the different possibilities—and to develop a plan for responding to each one. Especially important is the development of a disaster plan to address possible natural and terrorist catastrophes. The other four types of maintenance include routine maintenance, preventative maintenance, requested maintenance, and reserve replacement. 190. Employee handbook:ANS: A written set of personnel policies and procedures that define the relationship between the association and its employees and explain the responsibilities of both parties. Depending upon the state in which you work, the content of an employee handbook can have legal implications. expense. This is also known as a net gain. A loss occurs when expenses are greater than revenue. A loss is indicated by putting the figure in parentheses. The net revenue or loss can be significantly different depending on whether a cash, accrual, or modified cash basis is used. 200. Executive session:ANS: There are times when a board of directors must hold a discussion or make decisions of a sensitive nature. Many states have so-called "sunshine laws" which limit the reasons why a governing board may go into a closed or executive session. Executive sessions may be held to discuss sensitive items such as litigation, contract negotiation, issues of a sensitive nature or personnel matters. Typically, there are no minutes for an executive session as the proceedings are confidential and intended for discussion only. Once the board has decided on its course of action, it should reconvene to the regular board meeting to vote so that the decision is recorded in the minutes. The discussion leading to the decision remains confidential. Some state statutes limit how executive sessions can be used and how decisions made in executive sessions should be recorded. 201. Expenses:ANS: Expenses are the cost of goods and services used to operate and maintain the community's property. 1.Expenses on a cash basis statement consists of any amounts paid. 2.Expenses on an accrual basis statement consists of any amounts incurred, whether or not paid. 3.Expenses on a modified cash basis statement is generally reported on a cash basis. In a budget, there are three types of expenses:ANS: 1) Operating expenses:ANS: These are items which occur on a routine basis for the operation of the association. 2) Major improvement expenses or capital improvements:ANS: These consist of items that are not required for daily operations, but may be added later to enhance value— such as adding a gazebo or awnings. 3) Replacement funding:ANS: Amounts set aside for future replacement of existing major components. 202. Exposure avoidance:ANS: This risk control technique involves avoiding the circum- stances that would expose the community association to certain type of loss. For example, to avoid problems that may result from serving alcohol in the clubhouse, the community association has a rule prohibiting the use of alcohol in the facility. 203. Extra expense insurance:ANS: A common insurance coverage for income expo- sures to loss. There is usually a certain amount of this coverage in the Commercial Package Policy (CPP). It is useful to consider the community association's income exposure as a net exposure to loss because both lost revenue and increased operating expenses may be insurable. This insurance applies when a covered loss either increases operating expenses or diminishes the income produced by normal operations. An example would be the extra expense of a temporary office, tempo- rary equipment, or temporary help, all of which may be needed if the community association's onsite office was destroyed by fire. 204. Facilities management:ANS: The process of operating, maintaining, repairing, and replacing common property—that is, the common elements or areas—in a com- munity association. A community association has four major maintenance goals:ANS: 1. To meet the needs of the individual residents as they relate to the community association's responsibilities 2. To preserve and enhance the common property 3. To limit potential exposure to injury to residents, guests, and employees 4. To protect property values of the homes or units through successful maintenance of the common property 205. Fair Debt Collection Practices Act (FDCPA):ANS: Federal statute designed to protect debtors from unscrupulous debt collectors and to impose a consistent and fair method to collect debts. The FDCPA gives authority to collect assessments. This may apply to your community association's collection efforts. 206. Fair Housing Act:ANS: Title VIII of the Civil Rights Act of 1968 (Fair Housing Act) prohibits discrimination in the sale, rental, financing, insuring and other housing related services of dwellings based on race, color, religion, or national origin. The original law was broadened in 1974 to add gender. In 1988, Congress further amended the law to protect people with disabilities (handicap) and familial status. Children under the age of 18 and women who are pregnant are also protected under familial status. The Act also includes design and construction accessibility provisions for multifamily dwellings (4 units or more) with first occupancy on or after March 13, 1991. Many states and local governments have adopted their own version of a Fair Housing Act that expands the protected classes to sexual orientation, age and sources of income, so every manager should be aware of all laws relating to discrimination in housing. 207. Fair Labor and Standards Act (FSLA):ANS: Federal law that dictates standards for minimum wage and overtime pay. It affects most private and public employment. It requires employers to pay covered employees who are not otherwise exempt at least the federal minimum wage and overtime pay of one-and- one-half-times the regular rate of pay. Some states have 213. Federal Insurance Contributions Act (FICA):ANS: Federal lawrequiring employ- ers and employees to make matching contributions to Social Security. The employer must withhold the employee's share of the tax from his or her wages or salary and pay it timely to the federal government. Big penalties await those companies that do not submit their employees' withholding within the prescribed time. The Department of Labor also clarifies the difference between an employee and a contractor. As long as the management company controls when the worker is on site, what work the worker must do and when, and provides tools to perform the work, the association must treat the worker as an employee. See www.dol.gov for additional criteria. 214. Federal National Mortgage Association (FNMA, or Fannie Mae):ANS: Fannie Mae is a private agency backed by the federal government that insures mortgages, paying the lender if the borrower defaults. Fannie Mae sets requirements that community associations have to meet for owners to participate in their financing or repurchase programs. Agency regulates and influences such items as the amount of insurance a community association must carry, procedures for financial operations, the procedures an association must follow to dissolve, and requirements for the upkeep of property. 215. Fidelity insurance:ANS: A common insurance coverage for income exposures to loss. This insurance protects against employee dishonesty which may lead to the theft of money, securities, or property. For the community association, this coverage must insure all persons (e.g., board members, committee members, volunteers, community manager, etc.) who handle funds whether they are salaried or not. Often fidelity insurance will be combined with the Commercial Package Policy (CPP). Fidelity insurance limits are often set by government sponsored enterprise (GSE) standards. The GSEs, with appropriate controls, require three months of assessments, but best practices suggest three months of assessments plus the reserve funds. The association should have its own fidelity coverage independent of the management company's policy. The management company should also be covered under the association's policy, as well as any unpaid volunteers; these provisions should be written into the policy. 216. Fiduciary duty:ANS: Requires directors to act in the best interests of the community as a whole, and for the benefit of the corporation. This fiduciary duty has two components:ANS: 1. Board members are required to avoid conflicts of interest and acting out of self-interest. 2. They are also required to act as reasonable people in managing the association's affairs. Although they may delegate some of their authority to others, they cannot delegate their legal obligation to protect the asset that is the total community. It is the board that is ultimately responsible for the management of the association. The board can direct or empower the manager to take certain actions on behalf of the community association. However, the board is still responsible to the owners. 217. Financial report:ANS: Document that reports on the community's financial con- dition and activities. Financial reports have two primary purposes:ANS: 1. To provide their internal and external users with the information needed to make appropriate decisions on behalf of or regarding the community association. 2. To enable the community association board and manager to control the community's financial operations. At a minimum, interim financial reports should include:ANS: 1.A statement of revenue and expense with a comparison to budget 2.A balance sheet Accompanying information to the financial reports should include:ANS: 3.Bank statements with reconcili- ations 4.Aged receivables report (amount owed by owners) 5.Open payables report (amount owed by the association) 218. Flood insurance:ANS: A common insurance coverage for property exposure to loss. This type of insurance is available only through the National Flood Insurance Program (NFIP), a federal insurance program, if a building is in a flood plain. It provides coverage for damage caused by flood (rising water) and mudslides to buildings and contents. Policy limits are driven by the internal requirements of the NFIP. The NFIP program is predicated on the association insuring to full insurable replacement cost or a maximum of $250,000 per unit. If a building is not in a flood plain, premiums are much more reasonable and can usually be obtained as an endorsement to the Commercial Package Policy (CPP). 219. Foreclosure:ANS: A legal proceeding filed in court whereby a party with a claim against an owner can claim ownership of the unit involved in order to recover the money it is owed. The unit is usually auctioned by the court's representative or the association's legal counsel and sold to the highest bidder. If a community association purchases a vacant unit that is foreclosed, it may rent it or use it to house an onsite employee. 220. Full funding:ANS: Setting a reserve funding goal of attaining and maintaining reserves at or near 100% funded. This is a conservative methodology, characterized by higher (typically) reserve contributions and higher reserve balances. This funding plan results in the least likelihood of special assessments and/or bank loans. 227. Hearing:ANS: One of the steps in a due process procedure for enforcing rules. A hearing is a fact-finding session and an inquiry into the allegations and an investigation of them. A hearing should be viewed as an opportunity for both the association and the alleged violator to hear the input of the other party, not to engage in additional conflict. The hearing panel determines the facts; whether or not a rule has been violated; the penalty to be imposed, if any; and the enforcement date of the penalty, if any. The hearing panel then issues this information in the form of a decision. A hearing panel may find an alleged violator to have committed a violation or not—or decide that not enough clear evidence was submitted to allow the panel to reach a clear decision. The hearing panel should issue its written decision within the time frame mandated by state statute, the governing documents, or an administrative resolution by the board. A default hearing should be held if the alleged violator fails to appear. 228. Hearing notice:ANS: A written notice to an alleged violator that a hearing will be held to consider his or her alleged violation. Issuing a hearing notice is one of the steps in a due process procedure for enforcing rules. A hearing notice may contain the nature of the alleged violation, the action requested to cure the alleged violation, the time and place of a hearing, an invitation to attend the hearing and produce any statement, evidence or witnesses on his or her behalf, a statement that a sanction may be imposed, and the maximum amount of any sanction. 229. Hired & non-owned automobile liability insurance:ANS: A common insurance coverage for liability exposure to loss. This insurance covers legal claims arising out of the use of automobiles that are not owned by the community association, but that are used while acting on behalf of the association. Thus, injury to a third party and property damage caused by the use of automobiles belonging to board members, volunteers, employees, or management staff may be covered under certain circumstances. Damage to employee or volunteer vehicles or persons is not insured under this type of policy. The association would pay only that amount of a claim that is not covered by another policy, such as the other driver's insurance policy. 230. Historical trend budgeting:ANS: A method of budget preparation that begins with the assumption that existing line items are needed without justification and the budgeted amount for the coming year will be based on past trends. The amount of funds allotted to each during the current year is adjusted for expected changes in the coming year. Sources of historical information include financial reports, existing contracts, and bills from the past year. For example, general repairs to common elements will continually need to be performed. Assuming previous trends will continue, the amount for the coming year should be increased by 8%. 231. HO-1,-2,-3,-4,-5,-6 policies:ANS: Terminology varies with insurer, but homeowner (HO) insurance policies are usually referred to by the following numbers:ANS: 1.HO-1, HO-2, HO-3, and HO-5 refer to policies for owner- occupied single-family homes 2.HO-4 is a tenant's policy 3.HO-6 is a policy specifically for a condominium or cooperative unit owner 232. Human resources management (HRM):ANS: HRM is the process of planning, organizing, leading, and controlling an association's human resources—its employ- ees—in order to achieve the association's goals. HRM involves:ANS: 1.Establishing and administering HRM systems 2.Complying with applicable federal, state, and local laws and regulations 3.Recruiting, screening, and selecting people 4.Training and developing people 5.Establishing performance objectives and evaluating work per- formance 6.Supervising people 7.Dismissing people, when necessary An effective human resources management process helps both management and employees to fulfill their basic obligations to one another. 233. Income:ANS: Also commonly referred to as revenue. Income represents the earn- ings of the community association. Income on a cash basis statement consists of revenues received and deposited. Income on an accrual basis statement consists of revenues earned, including amounts assessed to owners in accordance with the budget but not yet received. Generally on a modified cash basis statement, income is recorded on the accrual basis. Income consists of:ANS: 1. Owner assessments:ANS: Most income will be derived from owner assessments. 2. Interest:ANS: Interest earned from invested replacement reserves and/or excess operating cash. 3. Other income:ANS: Late payment fees, fines, and user fees 234. Income exposure to loss:ANS: One of the four types of sudden, accidental and unexpected losses to which a community association is exposed. Income losses involve a reduction in income or an increase in operating expenses, or both. The other three exposures to loss are property, liability, and personnel. 235. Increased cost of construction:ANS: One of three components of ordinance/law insurance. Covers construction costs due to changes in the building code since original construction took place, e.g. wider door frames, types of insurance coverages that address the four types of possible exposure to loss:ANS: property, liability, income, and personnel. 240. Inventory:ANS: A typical management tool used to identify physical assets and their maintenance needs. This is a record of all real and personal physical property owned and maintained by the community association. Inventories usually record the following information for every item listed:ANS: 1.Date of purchase 2.Warranty 3.Quantity 4.Description 5.Original installer/builder or service contractor 6.Extended warranty and provider 7.Cost 8.Special maintenance needs 9.Estimated replacement data 10.Other 241. Investments:ANS: The purchase of anything with money value for the purpose of generating additional money over time, such as savings accounts. A commu- nity manager may be responsible for overseeing the association's investments. A well-run community association should have a written investment policy and a set of procedures for ensuring that the policy is implemented. Every community association also should establish a system of internal checks and balances to protect its investments. 242. Job description:ANS: A job description is a specific description of the— 1.Required duties of a position 2.Skills and knowledge necessary to perform required duties 3.Reporting relationships of the position A written job description should exist before you hire an individual for a position:ANS: 4.It tells you and the potential employee what is expected of the person in the position 5.It is an aid for planning and budgeting for the use of personnel 6.It is an aid for evaluating job performance For the above reasons, it is important to take the time to periodically review and update job descriptions. An outdated job description leads to misunderstanding at best and legal problems at worst. Job descriptions should be created for each staff position. 243. Liabilities:ANS: One of the three major components of a balance sheet. Liabilities consist of what is owed to others or collected in advance (e.g., owner assessments received prior to the billed month, accounts payable, etc.). A balance sheet also contains assets and members equity (or fund balance). 244. Liability exposure to loss:ANS: One of the four types of exposure to loss for an association, liability losses include damage to non- association property or to a person, and arise when a person or entity threatens or actually brings a legal claim against the community association, its members, or others whom it must indemnify by contract (such as a management company). The other three types of exposure to loss for a community association are property, income, and personnel. 245. Lien:ANS: A legal claim by one party (community association) on the property of another (delinquent owner) to obtain the payment of a debt or the satisfaction of an obligation. The automatic lien in a community association protects the association's interests. It encourages payment of the debt. Among other consequences of a lien, the owner cannot sell or transfer the unit without settling the debt. 246. Liquidity:ANS: One of three essential investment objectives for community associ- ations, liquidity refers to the ease with which an investment can be converted into cash or a cash equivalent. Due to unexpected events, a community association may need access to its invested funds at times other than planned; liquidity is the ability of the association to access and use these funds. The other two essential investment objectives are safety and yield. 247. Loss prevention:ANS: A risk control technique that involves taking steps to reduce the frequency of a potential loss, such as conducting weekly fire safety inspections where flammables are stored. 248. Loss reduction:ANS: A risk control technique that involves taking steps to reduce the severity of a potential loss, such as installing a sprinkler system where flamma- bles are stored. 249. Maintenance calendar or schedule:ANS: A common management tool for ensur- ing that maintenance work gets done in a timely manner, a maintenance calendar or schedule identifies what needs to be done during the year and how frequently. 250. Maintenance contact sheet:ANS: A useful management tool that records the con- tacts for various maintenance services and any pertinent information needed during an emergency. Every community manager should have an up-to-date maintenance contact sheet and carry it with him or her at all times. Maintenance fee The owner's financial obligation to the community association during a given period of time—usu- ally one year. Also commonly referred to as an assessment. A maintenance fee for an owner's share of the common expenses is a binding legal obligation based on the community association's governing documents. It covers the owner's share of the common expense (known as "common expense liabilities" in some states). Maintenance fees may be paid on a monthly, quarterly, or annual basis. Most of a community's revenue will come from maintenance fees. 251. Maintenance management tool:ANS: Any means used to track, record, remind, or command attention. Usually these means are forms or documents. Examples of maintenance management tools include:ANS: opportunity to update the board on action items of interest or concern and to demonstrate all the accom- plishments the manager performed on the association's behalf. The management report should be distributed to the board along with the agenda and other supporting materials in advance of the meeting. 259. Mandatory budget line items:ANS: Budget items based on community and owner needs. They are requirements that the community is obligated to meet, e.g., income taxes, management fees, repairs, utilities, and maintenance. 260. Mandatory committee:ANS: A committee that is required by the governing doc- uments. Mandatory committees typically are assigned responsibilities related to:ANS: 1.Elections 2.Nominations 3.Architectural Standards 261. Master association:ANS: A governance structure where there is more than one residential community association grouped together. Often there is a hierarchy with independent sub- associations under a master association. It is also known as an Umbrella Association. 262. Master deed:ANS: Sometimes used interchangeably with declaration and CC&Rs or declaration of covenants, conditions, and restrictions, the master deed is a gov- erning document used primarily for planned communities. More than any other single document, the master deed establishes the planned community because it spells out the essential elements of ownership. The planned community comes into existence when the master deed is filed in the office of the local recorder of deeds or registrar of titles. The master deed generally:ANS: 1.Defines the portions of the development owned by the individual owners and those owned by the community association—if any 2.Creates interlocking relationships binding all the owners to one another and to the community association for the purposes of maintaining, governing, and funding the development 3.Establishes standards, restrictions, and obligations in areas ranging from architectural control to prohibitions on various activities in order to promote harmonious living 4.Creates the administrative framework for the operation and management of the community association—although many of the specific administrative details are spelled out in the bylaws 5.Provides the mechanism for financial support of the community association through assessments 6.Provides for a transition of control of the community association from the developer to the owners 263. Mechanical equipment breakdown insurance:ANS: A common insurance cover- age for property exposure to loss. If a community association has mechanical equip- ment of any kind (including elevators, pool equipment, and electrical transformers), it should consider this coverage because the Commercial Package Policy (CPP) does not cover damage from mechanical breakdown, electric arcing, or power surges. Some policies also insure computer equipment, security systems, closed circuit TV, and similar information technology property. 264. Mediation:ANS: A form of alternative dispute resolution (ADR) whereby disputes are submitted to a trained, uninvolved third party for assistance with solving a problem. Mediation is a non-adversarial process that is intended to bring about a "win-win" resolution. In this process a neutral third party—called a mediator—at- tempts to guide the parties into reaching a resolution or settlement that is favorable to everyone. It gives both parties a chance to present their side in a forum where confidentiality is guaranteed. Mediation is often the first meaningful discussion the parties have, in which each party has the opportunity to face the other and work through the issues with the help of the mediator. Like arbitration, mediation can be binding or nonbinding, depending on the terms agreed upon between the parties before the session begins. 265. Medical payments insurance:ANS: A common component of an association's liability insurance policy. Medical payments insurance is technically an accident policy that pays third parties for limited medical expenses without the injured party having to file a lawsuit against the association. For example, a visitor may trip over a sprinkler head and twist her ankle. This type of insurance will cover the visitor's medical expenses. 266. Members' equity:ANS: Another term for fund balance; used with the fund method of reporting. On a community association balance sheet, members' equity equals the difference between the community association's assets and liabilities. Industry standards suggest a minimum balance of 2- 5% of gross assessments with 10-15% being very good. 267. Minutes:ANS: Minutes of meetings must be kept to document the actions and decisions of the board of directors. Minutes are the permanent record of the board. The minutes should reflect what actions were taken in the meeting, not what was said. The minutes are not meant to provide a narrative or transcription of the meeting. 268. Mixed-use development:ANS: Usually consists of a mixture of residential and commercial and/or industrial uses. Their marketing slogan is often "live, work, play."