Shared Flashcard Set


CMCA Principles
Focus Questions

Additional Management Flashcards




What are the 3 defining characteristics of a Community Association?

1. Membership is mandatory and automatic

2. Governing documents bind owner and association to each other

3. Mandatory assessments used to operate and maintain common property


A. What are the 3 types of community associations?  

B.  What are the 3 "other" types of communities?


A. 1. Planned-Owner owns lot, Community owns commons

     2. Condo-Owner owns unit and percentage of commons

     3. Cooperative-An individual owns stock or membership and

          holds a lease agreement on living unit

B. 1. Master (Umbrella)-more than one community assoc.

     2. Mixed-Use Development-residential & commercial

     3. "55 and older"-80% of owners are 55 and older

What are 3 things to consider when determining if a request for a reasonable accommodation is valid?

1. Is the disability covered under Fair Housing Act?

2. Is the request reasonable or does is impose undue burden (or

    require major alterations)?

3. Is the request directly related to the individuals disability?

What is the general hierarchy of authority among governing documents for community associations?  (6)

1.  Recorded map, plat or plan

2. Declaration, CC&R's, master deed

3. Proprietary lease or occupancy agreement

4. Articles of Incorporation

5. Bylaws

6. Board resoutions

What are the 3 main purposes of a community association?

1. Community (spirit)

2. Government (protection)

3. Business (income value)

In the scope of rules and guidelines, what 4 main areas are covered?

1. Behavior

2. Use of Common Property

3. Use of Individual Lots/Units

4. Appearance of individual Lots/Units

Identify the 4 types of Resolutions:

1. General

2. Administrative

3. Special

4. Policy

What are the 4 sections of a Resolution Format?


P-Purpose-why the rule is being adopted

A-Authority-citing the primary source of a boards authority to

    make the rule

S-Scope and Intent-who will be affected, for how long, reach or

    range and extent of rule, penalty for non-compliance

S-Specifications-clearly explain what those bound by the rule

    are expected to do


What are the 6 basic steps of Due Process Procedure?



1. Call or send courtesy letter to resident

2. Issue formal letter

3. Issue hearing notice

4. Hold the hearing (or default hearing)

5. Issue decision 

6. Allow for appeal of decision

What are the 5 Internal Resources for enforcing rules?

1. Suspension of voting rights

2. Suspension of use of common areas

3. Fines

4. Eviction

5. Self Help

What are the 5 External Resources for enforcing rules?

1. Police/Fire

2. Animal Control

3. Zoning

4. Building/Planning

5. Health

What are the 4 types of Exposure to Loss for a community association?

1.  Property-tangible or intangible (real property: bldgs, land,

     info)  (personal property: inventory, furniture, supplies)

2. Liability-3rd party claim of personal or property damage

3. Income-net loss-reduction in income or increase in expenses

4. Personnel-claims by personell


(Property Insurance)

What are the 4 main risk control activities?


1. Exposure Avoidance

2. Loss Prevention and Reduction

3. Segregation of Exposures

4. Contractual Transfers


(Property Insurance)

Real Property vs. Personal Property


Real Property: 

buildings, land and EDP exposure (EDP is Electronic Information and Data Processing)


Personal Property: 

inventory, furniture, fine arts, equipment, supplies, machinery, valuable papers and records


(Property Insurance)

What are the 3 insurance forms that identify exactly what is covered by the policy?


1. Special

2. Broad

3. Basic


(Property Insurance)

What are the 5 coverages for property exposure to loss?


1. Commercial Package Policy (CPP)  

     a. Property 

     b. Liability

2. Mechanical/Equipment Breakdown Insurance

3. Ordinance/Law Insurance

4. Flood Insurance

5. Electronic Data Processing (EDP)


(Liability Insurance)

What are the 4 types of Liability Coverages and Endorsements?


1. Commercial Package Policy: (The Commercial General Liability (CGL) part of the CPP provides insurance coverage for legal claims from BI, PD, AI, and PI)

2. Hired and non-owned auto liability insurance

3. Commercial Umbrella insurance

4. Directors and Officers (D&O)


(Liability Insurance)







Bodily Injury

Property Damage

Advertising Injury

Personal Injury


(Liability Insurance)

Liability claims can be brought against a community association because of:


1. Property Damage-improperly maintained light pole falls on car

2. Bodily Injury-a slip and fall on a crumbling sidewalk

3. Personal Injury-libel, slander, invasion property, wrongful entry

4. Advertising Injury-misappropriation of advertising ideas or style of doing business or infringement of copyright, slogan or title


(Income Insurance)

What are the 4 Income Insurance Coverages and Endorsements?



1. Fidelity Insurance

2. Business Income Insurance

3. Assessments Receivable Insurance

4. Extra Expense Insurance


(Income Insurance)

When dealing with income loss exposure, what are 4 main sound financial practices?


1. Separation of Duties-for recording income and paying expenses

2. Multiple signatures-on bank and investment accounts

3. Monthly reconciliations-of bank statements with financial reports

4. Performance of an independent compilation, review, or audit of every managed association


(Income Insurance)  

Chart for determining what sources of revenue that can be insured:


Sources of Revenue                                    Insurance Availability

Assessments                                                                        Sometimes, in policy called                                                                                          "Assessment Fees Receivable"


Interest Income on Reserves                                                 Not Insurable


Fine and Penalties                                                                  Not Insurable


Clubhouse or Unit Rentals                                            Insurable by Business Income


Vending Machines                                                          Insurable by Business Income


Washers/Dryers                                                              Insurable by Business Income


Restaurant of Gold Pro Shop                                        Insured as Business Income


(Personnel Insurance)

What are the 2 common insurance coverages and endorsements for Personnel Exposures to Loss? 


1. Workers' Compensation Insurance

2. Employers' Liability Insurance


(Personnel Insurance)

What are 2 common contract issues related to minimizing an association's personnel exposures to loss?



1. Every Commercial General Liability (CGL) policy contains an exclusion for claims that should otherwise be covered under applicable state workers' compensation statutes.

2. Volunteers, including directors and officers, can only be insured through WC if the state statute permits coverage.  

What are the 3 basic components of the Association Insurance Program?

1. The bidding process

2. Program Maintenance

3. Program Evaluation


What are 4 important designations in the insurance field for association insurance?

1. CPCU-Chartered Property and Casualty Underwriter

2. ARM-Associate in Risk Management

3. CIC-Certified Insurance Counselor

4. CIRMS- Community Insurance and Risk Management Specialist

What are 5 responsibilities of the manager when dealing with the financial management of an association?

1. Exercise of ordinary and reasonable care.

2. Use of sound business judgement (due care, good faith, discretion

3. Maintenance of record keeping system

4. Payment of bills in timely manner

5. Collection of monies owed to the association in timely manner

What does a budget establish? (3 main things)

1. What services and programs the community will provide

2. When they will be done

3. How they will be done

What are the 4 sources of a budget requirements?

1. Federal laws and regulation

2. State statutes, regulations and court decisions

3. Local laws and regulations

4. The community's governing documents

What are the 4 federal agencies that regulate and influence such items as the amount of insurance an association must carry, procedures for financial operations, the procedures and association must follow to dissolve, and requirements for the upkeep of property.

1. FNMA (Fannie Mae)

2. FHLMC (Freddie Mac)

3. Federal Housing Administration (FHA)

4. Veteran's Administration (VA)

What are the 2 main components of a community budget?

1. Revenue

2. Expense

What are the 3 typical sources of revenue for a community association?

1. Owner assessments or Special Assessments

2. Interest

3. Rent, late fees, fines, user fees

What are the 3 types of expenses for an association?

1. Operating

2. Major Improvements

3. Reserve Account

What is the most common formula used to calculate assessment fees for condominium owners?

Total Assessments Required in Annual Budget (multiplied by) Percentage Interest as Found in the Declaration (divided by) Number of Installment Payments in a Year



What are the 2 types of expenditures in a community budget?

1. Mandatory Line Items

2. Discretionary Line Items

What are the 3 basic methods of budget preparation?

1. Zero based budgeting-set to zero review every penny spent

2. Historical Trend Budgeting-go by whats happened in the past

3. Combined method-use zero based for discretionary and historical based for mandatory


What are the 3 ways to present historical information for supporting budget estimates for the coming year?



1. line graph

2. table

3. bar graph

What are 5 reasons to maintain a reserve account to convince the board and owners of the importance of budgeting the replacement reserves?

1. Meets legal, fiduciary, and professional requirements

2. Provides for the planned replacement of major items

3. Equalizes the contributions of old and new owners

4. Minimizes the need for special assessments

5. Enhances resale values


*Employment contracts need not include:


A. Legal Sources

B. Interests

C. Termination

D. Notice

Answer is B.  Interests is not a relevant component of an employment contract.

*What "duty" do the board members and the manager have to the members?


a. accountability

b. loyalty

c. service

d. conduct

b. loyalty  -members and manager have the Fiduciary "Duty" of Loyalty to the owners

You have a proprietary lease in XYZ development.  Which of the following best describes your interest in the property?


a. time share interest

b. divided interest

c. undivided interest

d. stock membership


d. stock membership...only in a Cooperative Corporation does the shareholder receive stock membership.

Which of the following has the greatest regulatory influence on the management of a community association?


a. federal statutes

b. articles of incorporation

c. specific state statutes

d. general state statutes


c. specific state statutes...there may be specific state statues addressing regulations which effect the management of an association.


(if you picked d.)  incorrect because there are no general state statutes addressing regulations which effect the management of  associations


In the hierarchy of associations governing documents, which of the following is the highest authority?


a. bylaws

b. articles of incorporation

c. declaration

d. mortgage lender requirements


c. declaration...  the correct hierarchy of documents is as follows:


1. recorded deed or map

2. declaration or master deed

3. articles of incorporation

4. bylaws

5. rules and regulations



A significant decline in the amount of investments is most likely the result of:  


a. failure to invest association funds properly

b. seasonal timing of expenses

c. expenditures out of reserve funds

d. failure to collect delinquent assessments

c.  expenditures out of the reserve funds....the reserve funds are set aside, usually in investments such as money market accounts and certificates of deposits, for the purpose of funding the repair or replacement of major, capital components.  Therefore, the appropriate use of these funds will result in a decline in the amount of investments.

The best reasoning for recommending the modified accrual accounting method is that, compared to cash accounting, it:


a. will make future audit work more accurate

b. more accurately reflects the associations financial condition

c. is more easily understood by board members

d. can be accomplished more quickly

b. under the modified accrual basis, some accounts, such as assessment income, are maintained on the accrual basis and other accounts, such as interest or other misc income accounts, and some expenses, such as misc repairs, are maintained on a cash basis.  the accrual of major expenses in particular, such as contract for landscaping, trash removal, etc. regardless of non-receipt of invoices, gives the reader a much more accurate depiction of the associations financial standing, as the accruals service to alert the reader to the recognition of obligations that the association must meet.

Community managers must be familiar with federal income tax requirements and options because:


a. the IRS will intermittently interview the manager concerning tax filing status

b. states require managers to be knowledgeable in this area of community association finance.

c. under Federal tax code, all organizations are taxable on their income unless specifically exempted

d. the accountant will require input from the association when the tax return is prepared.

c. while managers do not necessarily have to know all aspects of what info must be endtered on a tax return, a manager must know, in order to provide guidance to association boards of directors, that associations must file tax returns and may have a tax obligation.

What are the two essential financial documents the board of directors should use to determine the amount of funds available for an unbudgeted expense?


a. statement of cash flows and accounts receivable report

b. balance sheet and statement for revenue and expense

c. statement of cash flows and check register

d. replacement reserve report and general ledger

b.  the balance sheet shows the amount of money on hand in all association accounts as well as that allocated to reserves at a given point in time; the statement of revenue and expense shows the activity in all budgeted line items over a period of time.  Together these reports can be used to determine expenses to date and funds available for the future.

Your association just completed the eighth month of its fiscal year.  Which financial report would be most useful to project year end expenses? 


a. statement of revenue and expense

b. balance sheet

c. statement of cash flows

d. accounts payable report

a. statement of revenue and expense shows the activity over a period of time and therefore will indicate the amount of income received and expenses incurred, whether actual or accrued, for all activity of the association through the 8 months of the fiscal year.  The report may also show the amount of money in each budgeted line item for the entire year and amount remaining in each line item for the last 4 months of the year.

The interim financial report should, at a minimum, include a:


a. statement of changes in members equity, cash flow analysis, and notes to financial statements

b. statement of reserve funding, investment results, and accounts receivable

c. statement of income and expenses, account balance, and a balance sheet

d. statement of cash flow, balance, and bank statements

c.  these are the minimum components of an interim financial report

If you want to know the difference between actual and budget figures for a revenue account, to which documents should you refer?


a. balance sheet and budget

b. statement of cash flow and budget

c. statement of profit and loss

d. statement of income and expenses and budget

d.  this report shows the activity over a  period of time and therefore will indicate the amount of income received and expenses incurred, whether actual or accrued, for all activity of the associations through the last day of the month or the reporting period.  The report may also show the amount of money in each budgeted line item for the entire year and amount remaining in each line item for the last months of the year.  The budget is an estimate of revenue and expense for a given period, usually a year, but does not show actual figures.  A comparison of the 2 against one another, best depicted on the same report, permits the reader to see the difference between atual and budgeted figures.

What is the primary source of requirements when developing the associations annual maintenance budget?


a. governing documents

b. state law

c. annual audit

d. reserve study

a. governing documents will give notice requirements and budget cap information

Which method is the best alternative to increasing assessments?


a. reducing mtnc expenses by deferring repairs

b. increasing income by charging higher user fees

c. reducing mtnc expenses by selling common areas

d. increasing income by opening a line of credit

b.  this is the alternative which will provide a consistent, sustainable increase in operation revenues.

Liability claims should be sent to the insurer:


a. requesting a public adjuster be assigned

b. without admitting fault

c. by the insurance trustee

d. within 72 hours of the incident

b. liability claims imply an injury and accordingly one never admits to guilt nor negligence

To provide for payment of the insurance deductible, you would:


a. pass the cost directly on to owners

b. negotiate with the hired contractor

c. allow for costs in the operating budget

d. budget as  a reserve expense

c. payment for deductible implies a "cost" and costs are accounted for within the association budget.  Known as self-insurance it allows for payment of an insurance deductible.

Which of the following types of insurance coverage is one of limited value to a community association?


a. liability

b. assessment fee receiveable

c. worker's compensation

d. commercial umbrella

b.  assessment fee receivable insurance has a certain limited value to an association.  Such insurance will assist in situations such as a fire destroying a home or unit and the association is unable to collect assessments from the owner,  It does not provide coverage for the association if an owner refuses or fails to pay assessments
While preparing a new budget, what are the three main reports needed for the budget packet?

-operating budget

-summary of reserve budget

-3-5 year cash flow report combining operating and reserve budgets

When dealing with the reserve funding accounts, there are four different types/goals to maintain the funds...what are they?

1. baseline funding

2. full funding

3. percent funded

4. threshold funding

What are the 4 sources of budget requirements?

1. Federal

     a. IRS-income/payroll

     b. EPA-hazardous waste removal requirements

     c. FHA-improvements needed to buyers to qualify

2.  State

      a. Replacement reserves 

      b. insurance

      c. workers comp insurance

3. Local

      a. property taxes

      b. recycling fees

      c. inspection fees

4. Association Governing Documents

       a. property mtnc

       b. mandatory services

       c. revenue sources

What are the 2 most commonly used methods used to calculate assessments?

1. percentage method

2. equal method

List 8 sources of "other" revenue:

1. rent from commercial tenants

2. rent from lease of units

3. charges for resale packages

4. collection on insurance claims or legal settlements

5. antenna rental

6. ad space in community newsletter

7. user fees (pool, parking, laundry, clubhouse etc)

8. late payment fees and fines

What are 4 possible legal procedures and remedies for collecting delinquent payments?

1. Extra-Judicial 

    a. late fees or interest

    b. require security deposit

    c. acceleration

    d. suspend owner's privileges

    e. suspend voting/participation rights

2. Perfect a lien on the unit

3. Foreclosure of the unit

4. Sue the owner for a Personal Money Judgement

Name and explain the 3 types of bankruptcy:

1. chapter 7: "straight bankruptcy" or liquidation of an individual or corporation...prompt conversion of all property to cash and then to creditors to the extent possible


2. chapter 11: "corporate reorganization"...designed to allow for orderly payment to creditors while enabling corporation to continue to operate


3. chapter 13:  used to reorganize personal or non-corporate debt...a plan to pay off all or some of the debt over specified time frame while waiving other debt that may have been incurred prior to filing for bankruptcy.

What are 4 solutions for collection shortfalls?

1. levying special assessment

2. raising the regular assessments for the coming year

3. create a reserve for bad debts in the budget

4. cutting this year's expenses

Identify and explain the 3 types of accounting methods:

1. Cash Basis:

Records revenue when received and expenses when paid (simple)


2. Accrual Basis:

Records revenue when earned and expenses when incurred 

(most accurate & recommended by GAAP)


3. Modified Basis:

Records revenue when earned and expenses when paid 

(most common)

Identify types of financial statements:

Components of financial statement:

Revenue and Expense-records financial trans. for a period of time-keeps track of financial standings

Balance Sheet-snapshot of the financial condition at a specific time-shows the amount of money on hand

Subsidiary Reports 

     *bank statements

     *aged receivables

     *open payables

What are the 2 reasons that managers should be familiar with federal income tax requirements?

1. Under the federal tax code, all organizations are taxed on their revenue unless specifically exempted.

2. If your community association has significant non-owner revenue, it is to the association's advantage for you to consult with a tax professional to explore ways to reduce it potential income tax

Protect your community association against fraud and embezzlement by:

-know the association's federal tax identification (FTI)

-use lock box for deposits

-require dual signatures for all withdrawels

-segregate and safeguard your assoc. replacement reserves

-require that all statements of operating and reserve accts are send every month

-check invoices against checks paid and original rcpts for credit card accounts

-shop around for bank services

-know the association's insurance company and consult with the agent

-insure the association's money

-do not combine funds with other associations

-regularly engage an independent CPA to conduct an audit

Financial reports have 2 primary purposes:

1. to provide users with the information needed to make appropriate decisions on behalf of or regarding the association


2. to enable the association board and manger to control the community's financial operations

At a minimum, interim financial reports should include:

-a statement of revenue and expense with a comparison to budget

-a balance sheet


accompanying information to the financial reports should include:


-bank statements with reconciliations

-aged receivables report (amount owed by owners)

-open payable report (amount owed by the association)

What are the 6 reports that are required by GAAP?

1. Balance sheet

2. Statement of Income and Expense (or revenue and expense)

3. Statement of Changes in Members' Equity (or Fund Balances)

4. Statement of Cash Flow

5. Notes to Financial Statements

6. Unaudited supplementary information on future major repairs and replacements

What are the differences between Audits, Reviews, and Compilations?

1. Audit: 

-examination of accounting records by a CPA to verify accuracy and completeness

-it is required

-it comes with an opinion letter and a management letter


2. Review

-less thorough, cheaper

-reviews associations financial activities

-agrees that reports conform to GAAP

-provides lower level of assurance than audit


3. Compilation

-presentation of financial statements by CPA without assurance that the info conforms to GAAP

-CPA cannot make any claims of accuracy or completeness

What are some general federal income tax filing responsibilities for community associations?

1. all assoc. must file federal income tax return every year no matter the circumstances.

2. an assoc. federal tax return is due 75 days after the end of its tax year.

3. if previous boards failed to submit tax returns, the current board is not absolved from filing a return for the current year and for any other year that it wasn't submitted

4. an assoc may be required to make quarterly payments of its estimated annual tax, depending on the tax filing method it uses and the amount of the potential tax obligation. 

What are 2 federal income tax filing options?

-file as a regular corporation (form 1120)

-file as a homeowners association (form 1120H)

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