M 206 Reading - Financial Management

Additional Resources
2009 Community Associations Institute
M-206: Financial Management
Table of Contents
Appendix A: Additional Readings ...................................................... 1
Reading #1: A Loan At Last ............................................................... 3
Reading #2: The Bottom Line ............................................................ 8
Reading #3: $64,000 Questions ........................................................ 14
Reading #4: Self-policing ................................................................. 17
Reading #5: Healthy Wealthy and Wise .............................................. 21
Reading #6: Cashing In ................................................................... 25
Reading #7: To Collect and Serve ..................................................... 27
Reading #8: New Fannie Mae/Freddie Mac Underwriting Guidelines ........ 31
Reading #9: Dollars & Sense ............................................................ 35
Reading #10: Association Taxes - The Basics ...................................... 36
Reading #11: Article for OR CAI Newsletter ........................................ 39
Reading #12: Enron and Community Associations................................ 41
Reading #13: Questions to Ask Before Raising Assessment ................... 45
Reading #14: How Might a Community Association Answer the Five
Questions? ..................................................................................... 50
Reading #15: Seven Ways to Violate the FDCPA & How to Avoid Them ... 52
Reading #16: Fair Disclosure ............................................................ 56
Reading #17: How to Avoid an IRS Audit ............................................ 57
Reading #18: Tax Returns: Common Mistakes and How to
Avoid Them .................................................................................... 61
Reading #19: HUD Underwriting Requirements ................................... 62
Reading #20: National Reserve Study Standards of CAI........................ 69
The CAI Bookstore 77
Appendix B: M-100 Excerpts.. 83
Appendix A: Additional Readings
1
2
Reading #1: A Loan At Last

By Mary Alex Dundics
COMMON GROUND, JANUARY/FEBRUARY 2003
If your community association is like a lot of others, its close to celebrating its 20th
anniversary. That means the wear and tear on your exterior facades and interior
common areas are starting to take their toll, and your community might be in need
of major capital improvements. Heeding owner demands, your board probably will
want to take immediate action. It will have convened numerous meetings to discuss
how to enhance the property.
While you may debate siding materials or color schemes, the issue usually boils
down to one simple question: Do we have the money to pay for this?
Hidden Reserves
Capital improvement projects are a never-ending challenge for any community
association. Whether your roofs need repair, your windows need replacement, or
your wood siding needs to be updated to vinyl, theres always something on the
list. However, by working with professionals in the industry, you can make the
process far more manageable. One of the first tasksand often the most important
onedirectly affecting the financial security of your residents and your association
is deciding how to pay for these expensive projects. Barring an unexpected windfall,
you have three options: reserve funds, special assessments, and loans.
Each approach carries its own advantages and disadvantages. But all of these
options demand the involvement of industry professionalsmanagers, attorneys,
finance experts, and Reserve Specialistswho can examine them with you and help
you figure out the right approach for your community. In fact, regardless of which
option you choose, it might be best to involve Reserve Specialists from the outset
by beginning your project with a reserve study, which analyzes both the physical
and financial aspects of a commonly owned property.
The physical component of a reserve study looks at the physical condition of your
associations common elementsroofs, balconies, and HVAC systems, for
exampleas well as their estimated life and valuation. The financial analysis
assesses your associations fund status and reviews its funding plan. It also
identifies the additional capital needs of your community. With 85 percent of
associations planned improvement projects under funded, one of the most
important functions of a reserve study is education. A detailed study will
demonstrate the simple need to increase reserve contributionsor even to impose
a special assessmentin order to fund your projects in the required time.
3
Reading #1: A Loan At Last (cont.)

Of course, while youll always learn a great deal from a reserve study, in the end,
you might not have a choice about commissioning one. Lending institutions often
require a study in order to minimize risk and determine an associations ability to
repay a loan. And a bank definitely will want specific information if you apply for a
loan, including your associations past and current financial performance along with
documents that will identify your ability to both borrow money and pledge your
assessments as collateral. Even if youre not in the market for a loan, its good to
have such information in order and readily accessible.
Money, Money, Money
With your reserve study complete, you can focus on which financing option will best
enable your community to meet its capital improvement goals while protecting its
financial security.
Reserves. A communitys first line of defense is its reserve funds. Many
associations have adequately planned for a number of emergency and replacement
costs, and, depending on how comprehensive your reserve study is, you also might
have specifically allotted money for your more ambitious capital improvements.
The great advantage of reserve funding is that it allows you to avoid incurring
additional debt. However, it can be a risky proposition. The reserve fund is your
communitys financial underpinning. An emergency or other unforeseen occurrence
could deplete it completelyto devastating effect. For this reason, you might decide
that using your reserve funds alone involves an unacceptable level of risk for your
community.
Special assessments. When your reserve funds arent sufficient to cover the
entire cost of a project without jeopardizing your communitys financial viability,
you have the option of imposing a special assessment. In this situation, owners are
levied a one-time assessmentabove and beyond whatever monthly, quarterly, or
annual dues they payto help foot the bill for the improvement upfront. Like
reserve funds, special assessments have the advantage of helping to avoid
additional debt. This option is especially valuable for financially unstable
associations.
For obvious reasons, special assessments are the least popular funding option with
homeowners, many of whom resent having to pay another charge on top of their
existing fees. Indeed, special assessments might present an unbearable financial
burden on your owners who havent planned for the extra cost. If you decide to go
this route, inform your residents well in advance, discuss the other funding
possibilities with themand be prepared for the political fallout.
4

Loans. Of course, if your reserves arent deep enough and your owners are
threatening mutiny, there is another source to which you can turn: lending
institutions. Community association loans are typically structured as a line of credit,
a term loan, or a combination of the two.
Line of credit. Similar to a credit card, a line of credit is a predetermined amount
of money that your association can access as needed. You pay interest only on the
money you borrow, not on the entire credit line. Unlike with a flat-out loan, you can
prepay the outstanding loan balance at any time with no penalty. Generally, the
bank issues you a line of credit for a three-year period, with the outstanding
balance due at maturity. This option is extremely helpful for associations looking to
bridge the collection of a special assessment or an increased maintenance fee.
Term loan. Term loans provide all the funds you need, all at once. Interest rates
for this form of financing are either fixed or variable, and allow your community to
make repairs or improvements while paying back the loan over an extended period
of time. Because payments are spread over a course of years, avoiding one lump
sum, this is another favorite among associations.
Combination. While credit lines and term loans are both popular in their own right,
more often than not associations use a combination of the two to create their own
ideal, customized financing packages. Under this arrangement, for the first year
your association pays interest only on the money it has used; after that, the
balance of your line of credit is converted into a permanent term loan.
Now Ill put my cards on the table: I am a professional with a bank that specializes
in lending money to community associations. As such, Id like to further underscore
the advantages of obtaining a loan to meet your capital improvement needs:
If your improvement project requires immediate funding, a loan can help you
avoid the one-time special assessment that some of your owners may not be
able to afford.
A loan can allow you to increase your assessment rate ever so slightly,
spreading your owners payments over a longer period of time.
Because it makes funds available all at once, a loan allows you to solicit more
competitive bids and complete the entire projectall your repairs and
improvementsin one fell swoop. For example, you can replace all your roofs
at the same time, rather than spreading the work over several years.
A loan, usually in the form of a line of credit, can allow your community to
maintain a healthy reserve account for true emergencies.
5

Jersey Barriers
As with many things in life, capital funding is seldom an either/or proposition.
Increasingly, associations are paying for their projects with a combination of all
three options.
Such was the case with one New Jersey community. This 671-unit association,
spread over 164 buildings, was developed more than 30 years ago, and featured
such amenities as a lake, a large clubhouse, a pool, and a pitch/putt golf course.
Over the years, time and the elements had left their mark, and the community was
also beginning to feel the effects of its active residents. The buildings facades were
discolored and dilapidated, termites infested numerous individual homes, and the
common areas needed a significant face-lift. The community realized that it had to
do something immediately to preserve its investment.
After prioritizing its list of capital improvements, considering the convenience of its
residents, and estimating the costs involved, the association decided that it made
sense to complete the entire project at once. Unfortunately, its reserve funds were
insufficient to handle an endeavor of this magnitude. According to the communitys
manager, Judy Pagano, the association knew it needed a complicated, specialized
funding scheme. We tried to obtain financing for these types of projects in the
past, says Pagano, of the Community Service Group, but there were no banks
offering it, and the project would have been done in many phases, and extended
over a long period of time.
Finally, the association approached my bank, which created a program designed to
meet the exact needs of this community. We provided the association with a
combination multimillion-dollar term loan and a line of credit. The associations
board of directors kicked in a half-million dollars from its reserve funds, and was
able to draw down funds from the line of credit for up to a year, paying interest
only on the money it utilized. At the end of the draw period, the line of credit
converted to a 15-year permanent loan.
Our individualized package helped the association complete its entire project in
about a year, without burdening its owners with a huge special assessment or
completely depleting its reserves. Now, the community can reap the long-term
benefits, including the restoration of its homes, grounds, and amenities to their
former glory, a substantial increase in property valuesand a waiting list of
potential buyers.
Is this exact scenario appropriate for every association? No. And thats the point.
Each community has its own needs, resources, and limitations that will dictate the
practicalities of its approach to funding.
6

The New Jersey association was well situated enough to bear the weight of an
attractive loan package and also draw on its own reserves. Smaller or less
generously endowed communities likely would need financing that is
commensurately lesser in scope, possibly buttressed by modest assessment
increases.
What every association can take away from the New Jersey project is the
importance of being flexible and realistic. Adopt that mindset, and you can see all
your capital improvement dreams come true without squandering your reservesor
your residents trust.
7
Reading #2: The Bottom Line

HOW DO YOU FIND THE TRUE WORTH OF YOUR COMMUNITY? BY
MAXIMIZING THE VALUE OF THE CORE SERVICES YOU OFFER YOUR
RESIDENTS.
By Clifford J. Treese, CPCU, ARM, CIRMS
Common Ground, July/August 2003
Just as your community association is entitled to collect assessments and fees from
your residents, your residents are entitled to the responsible use of those funds.
This is the essence of financial management. To their credit, most boards of
directors realize this, and place a premium on prudent financial management by
skilled professionals.
But, when it comes to tracking your communitys money and the value it
represents, traditional financial management tells only half the story. While general
accounting principlesand their attendant balance sheets and budget processes
are essential to the health of a community, they are also backward-looking, in that
theyre dedicated solely to reconciling the bottom line.
When you think about it, however, your associations real bottom line is the
efficient and effective delivery of three core services to your residents: business
services, governance services, and community services. When viewed within this
context, financial management takes on addedor differentdimensions. Suddenly
your primary goal as a financial manager is to achieve and measure quality and
value in those core areas.
This is not to suggest that you should abandon generally accepted accounting
principles or ignore time-tested charts and budgets. The nuts and bolts of dollars
and cents will always be important. But, the core-services concept, based on
equity, quality, accountability, and transparency, helps demonstrate how and why
well-managed associations are good for residents. Plus, by infusing your financial
efforts with an awareness of core services, your association can gain at least four
important benefits:
Benchmarks. Services take the place of profitthe standard benchmark in the forprofit world, but completely out of place for associationsthereby allowing you to
create, implement, and evaluate best practices.
Informed decisions. The services you offer can also help potential homeowners
decide whether they want to buy a house in your community.
8
Reading #2: The Bottom Line (cont.)

Internal services/external outcomes. You can relate the delivery of services
not only to the needs and desires of your residents, but to the requirements of the
civil society of which your association is an integral part. For example, by managing
its own infrastructure, including streets, sidewalks, and retention ponds, your
association removes a burden from the larger society.
Comprehensive view. The core-services model can present a more complete
picture of your association and its functions, placing board and resident duties,
rights, and compliance within the larger context of meaningful outcomes that are
achieved through effective financial management and reflective deliberations.
In short, the goal is not to diminish well-established financial-management
activities, but rather to offer a new perspectivea fuller, more comprehensive way
of thinking about the value of your community.
True Value
During the last three decades, other organizations have supplemented their
financial-management efforts with theories and practices designed for one purpose:
to make better use of their money. The for-profit world, for example, has answered
the growing need for accuracy in reporting, careful feasibility analysis, cost and
production controls, and transparency for producers and consumers with activitybased costing (ABC) and activity-based management (ABM). Similarly, nonprofit
organizations such as hospitals have come up with ways to measure activity (how
many patients have been admitted and discharged) and outcomes (how many of
those patients are capable of independent living).
While these developments were taking place in the for-profit and tax-exempt
arenas, the still-young association industry was understandably enmeshed in the
ground-floor problems typical of start-ups. It wasnt until 1991 that the American
Institute of Certified Public Accountants, working with CAI professionals, adopted
the Common Interest Realty Associations Audit and Accounting Guide, which,
among other things, mandates auditor review of association reserve levels.
Certainly, this was a step in the right direction. But the fact remains that while
various other sectors of the economy were mapping out ways to augment the
meaning and usefulness of their financial statements, the association industry was
concentrating on establishing fundamental principles. It is now time to consider how
these lessons from the for-profit and tax-exempt sectors might be applied.
9

We begin with a standard balance-sheet equation used for financial reporting:
Assets = Liabilities + Fund Balance (or Owners Equity). We can create a similar
equation for a financial report based on core association services: Association Value
= Financial Management + Activities + Outcomes. Thus, you augment your
financial management by measuring the effectiveness of your core services.
This may seem difficult to assess, not to mention highly subjective, but in fact most
associations core services do not change dramatically from year to year. As a
result, going into this process you should already have a good sense of the
business, governance, and community services your association provides. Set them
down in an annual association services plan (ASP), and give that to your residents
along with this years budget and last years audit. To craft an ASP, your board will
need to create a new or supplemental chart of accounts that depicts all the
elements of the three core services. Generally speaking, you should link each
element to both activity and outcome measuresso you can track how exactly a
service was provided and if it was provided successfully.
If you follow this services-based approach, your board president will be able to give
a much more specific report at your annual meeting. Because your ASP will contain
financial metrics, activity measures, and outcome measures, your president will be
able to demonstrate a direct connection between the assessments and fees your
residents pay and how your association serves them.
Indeed, combining effective financial management with appropriate activity and
outcome measures might yield the true value of your association in the same way
that ABC and ABM measure true costs in the for-profit world. What might be the
true value of an association driven by the formulation, delivery, and financial
management of quality services to its residents? You can argue that its more than
just aggregate home resale values.
The Dream Team
More than anything, delivering quality services means having a quality team that is
comfortable with both the nuts and bolts of financial management and the bigger
picture of activities and outcomes. Who should be on your team? Community
leaders first:
Board president. Your president provides leadership and oversight for all your
efforts, especially in the development of the ASP and related policies.
Treasurer. Your treasurer is essentially your communitys chief financial officer,
reporting on all financial matters to the board and residents, and also serving as a
liaison to your finance professionals.
10

ASP committee. Traditionally known as the finance committee, the annual
services plan committee connects financial operationsincluding budget
preparation and requirementswith the delivery of core services.
Ideally, these leaders wont be on their own. Theyll be able to draw on the
knowledge and experience of an array of professionals that reflects the
multidisciplinary vision of the core-services model, including:
Manager. Your manager is your ultimate community professional, entrusted with
implementing association and board policies, including the ASP.
Accountant. This is your independent auditor, who analyzes your financial
operations and handles tax issues.
Reserve Specialist. Your professional reserve provider works with the board and
manager to analyze, plan, and budget for your communitys long-term maintenance
and improvement needs.
Banker. Working with the other professionals, your banker helps meet your
financial needs with loans, advice, and online services.
Financial management software provider. Rely on your software provider to
supply and adjust association financial-management programs that satisfy the
requirements of both your audit and your ASP.
Technology consultant. Software is only the tip of the computer chip. You can
also use a general technology consultant to keep your board and manager informed
about needed changes and necessary trends.
Getting Technical
Your technology consultant brings us to a final point: To tap the full potential of this
approach, you must embrace both information technology (IT) and the Internet,
which are the two most important drivers in association management, financial and
otherwise.
During CAIs recent Community Leadership Forum in Orlando, two industry
expertsMichael Magnotta, cpa, of Advanced Technology Group, in Pennsylvania,
and Gary Bugden, of Comstrata.com, in Australiapredicted that, because of the
growing influence of the Internet as well as the development of more cost-effective
IT solutions, very meaningful association financial-management technologies would
be adopted in the near future. Indeed, your association or management company
might already offer homeowners some of these online services:
11
Access to account information.

Bill payment.
Request and status update for covenants, architectural items, work orders,
and lender forms.
Access to relevant association documents.
Web-based integration with the associations core services.
There are also a number of electronic financial applications that can make
managers jobs easier:
Payment methods including lock box, direct debit, and credit-card payment.
Online presentation of financial information for residents.
Online document storage and retrieval.
Online meetings, training, and continuing education.
Remote-access technologies, including handheld devices as well as secure
access for remote users such as home-based employees, accountants,
attorneys, and vendors.
High-quality vendors and service providers already offer software, online-bill-pay
systems, and other technology that can help streamline your financial
management. In addition, CAI is participating in several IT-based initiatives:
CAI Treasurer. Together with iCLUBcentral, CAI has created a specialized
financial-management software program for small, self-managed associations.
Called CAI Treasurer, the package is designed to help an association treasurer
maintain accounting records, prepare budgets, collect dues, stay informed about
resources and best practices, and share financial information with residents. (For
more information, visit www.caitreasurer.com.)
AIS Online Information Services. CAI also has a partnering arrangement with
my company, Association Information Services, to provide for the online production
of information necessary for the sale, resale, financing, and refinancing of homes
within associations. (For more information, visit
www.caionline.org/prog/prodir/ais.cfm.)
CondoCerts. CAI has a similar partnership with CondoCerts, which provides
automated online delivery services for governing documents as well as resaledisclosure data. (For more information, visit www.CondoCerts.com.)
XML/XBRL. CAI will soon release for public comment Extensible Markup Language
(XML) and Extensible Business Reporting Language (XBRL) for the accurate
transmission of homeowner data across various IT platforms.
These and other electronic systems can help you deliver financial and other core
services to your residents more efficiently. And that makes them good for the
bottom line.
12
The Great Beyond

The core-services approach may seem abstract and elusive, but its grounded in a
very conventional notion: An association works when it delivers business,
governance, and community services in an effective and efficient manner,
benefiting not only its residents but the larger society as well.
Its time to realize the full potential of the association model, to find its true value.
How? By going beyond the dollars and cents of the bottom line. This does not mean
jettisoning well-tested financial-management practices. Instead, it means using
them in conjunction with performance measures that interpret your associations
money within the context of the services you deliver. It means a longer, wider
bottom line aimed at consistently meeting your residents needs and enhancing the
value of your community.
13
Reading #3: $64,000 Questions

10 THINGS TO ASK WHEN YOURE HIRING AN ACCOUNTANT.
By Gayle Cagianut, CPA
How much do you know about the Internal Revenue Services Revenue Ruling 70604? Most likely very little. For this and other reasons, you need the services of an
expert guide to association financial management. That would be your accountant,
an important member of your team who handles audits and tax filings, looks for
areas where better internal controls can protect assets, and in general serves as
your financial watchdog.
Like other specialized areas of association practiceincluding law, insurance, and
loansaccounting demands the services of a qualified professional. When your
community is looking for a CPA, ask prospective candidates these 10 questions.
1. What is your experience in the field of community association
accounting and tax?
Its not necessary for an accountant to have hundreds of association clients or to
have been in the industry for 20 years, but it does take more than a handful of
small association clients to become familiar with the professional standards and
unique issues surrounding associations. It also takes dedication to the industry,
which includes proper education and training. CAIs PMDP courses, for example,
while geared toward managers, are a good way for CPAs to familiarize themselves
with association issues.
2. Will you perform the work yourself, or do you have experienced staff? If
so, what is your input into the audit/review/tax process?
Its standard procedure for one of your accountants staff members to conduct
much of the audit. You have the right, however, to ensure that this person will be
properly supervised and that you have access to the managing partner in charge of
the work.
3. To what professional organizations do you belong?
There are accounting organizations at the national and state levels, including CAI.
Membership and involvement in such professional organizations shows a
commitment to best practices and continuing education and an interest in industry
trends, developments, and procedures.
14
Reading #3: $64,000 Questions (cont.)

4. Do you have the Common Interest Realty Associations Audit and
Accounting Guide in your library?
The American Institute of Certified Public Accountants has issued the CIRA Guide,
which is the bible of the accounting industry when it comes to associations. Any
accountant who works in our industry should be familiar with this book.
5. When was your last peer review, and what were the results?
A peer review is exactly what it sounds likea review of the accounting and
auditing standards of an accounting firm by other CPAs, who then issue a report
that is similar to an audit. Any firm you hire should have a clean peer-review
report.
6. Do you carry errors and omissions (E&O) insurance?
Similar to an associations directors and officers (D&O) policy, E&O insurance is
purchased by the accountant to protect clients from the financial impact of errors,
omissions, and incorrect accounting or tax advice. E&O coverage means that, in the
event of such an oversight, your CPA would have the means to file an insurance
claim to assist in the payment of claims or litigation settlements.
7. How do you determine whether to file Form 1120 versus Form 1120H for
federal taxes? What are your requirements with regard to Revenue Ruling 70604? Do you have any specific requirements with regard to capital contributions for
reserves or Section 277 expense limitations?
You may or may not grasp the tax issues involved with associations, but board
members and managers should ask these questions even if they dont understand
the answers. The accountant should not stumble or look perplexed when you pose
these questions, but should easily recognize and respond to these issues.
8. Can we get references from various managers and board members with
whom you have worked?
Find out if the accountant works with your type of association and management
stylefor example, self-managed versus portfolio manager and master-planned
communities versus condominiums.
9. Will you have a problem meeting our deadline for the annual audit or
review and/or tax returns? Will you put that in your engagement letter?
Determine what deadlines are importantfor state statute reasons, governing
document compliance, annual meeting schedules, and so on. Ensure that your CPA
has the necessary resources to meet your deadlines.
15
Reading #3: $64,000 Questions (cont.)

10. Do you require our staff to prepare schedules or reconciliations beyond
what we normally do on a monthly basis? Will there be any other
requirements of our staff, such as pulling invoices?
Some bid pricing may be different based on the fact that one accounting firm
requires more or less work by the association or manager. You might also ask when
and where any of this work will be performed. If you take the time to interview
prospective accountants carefully, you should find a professional who meets your
needs and with whom you can foster a long-term relationship. Then your
accountant can offer professional advice based on a shared history with your
association.
16
Reading #4: Self-policing

PROTECTING YOUR ASSETS MEANS AUDITS, ANTI-EMBEZZLEMENT MEASURESAND LOTS
MORE.
By Dana James
Keeping your associations money safe is simple. You just have to make it hard to
steal. Right? Wrong. Yes, you need to beware of embezzlement and shoddy
accounting, but associations have also been sunk by bad investments and personalinjury lawsuits.
Says Common Ground contributing editor Barbara D. Wick, CPCU, ARM, AIS, CIRMS,
president of Community Association Risk Management and Insurance Consultants,
in Northfield, Illinois: One way to think about [protecting association assets] is to
ask, How many ways can you get into trouble?
As it turns out, quite a few. While industry experts concede that myriad measures
exist to protect your reserve and operating funds, most single out a few broad
areas as being especially important: rigorous internal controls on, and annual
outside analyses of, your financial activities; an established and cautious reserve
investment program; and insurance policiesincluding liability and employeedishonesty coveragebased on need rather than cost.
Inside Out
The primary responsibility of board members is to preserve and maintain the
assets of their association, says William Owens, cpa, owner of William Owens &
Co., in Carbondale, Pennsylvania. A formidable task to be sure, but association
bylaws and state and federal regulations typically spell out requirements, such as
how often your association needs to be audited and what types of investments are
allowed. Before your board makes any decisions or enacts any policies, it first
should review and understand these rules.
Internal controls. Embezzlement and fraud are typically what associations think
of when it comes to loss of funds. The first line of defense against employee
malfeasance is strong internal controls, with separation of duties as the mantra.
Anytime one person has access to all activities involving moneyapproving,
collecting, depositing moneythats too much control in one area, says Linda J.
Schiff, cmca, president of Community Advantage of Barrington Bank & Trust Co., in
Barrington, Illinois. At a bank, an officer cant walk into a vault alone. Two
different people, two different keys, are always required to unlock that vault.... An
associations monetary assets are like that bank vault.
You can implement dual control in a variety of ways and among a variety of
players. For example, if your treasurer reconciles the bank statements, you should
17
Reading #4: Self-policing (cont.)

designate another person to review the reconciliation. But if your manager is
charged with reconciliation, the treasurer should evaluate those operations.
Accountants also recommend that the person who records receipts should not make
deposits, while the person who approves invoices should not also write checks. Two
signatures should be required on all reserve or investment transactions, with at
least one being a board members (and some states mandate both). Some experts
are less strict when it comes to operating funds, recommending two signatures only
on checks over a specified amount or for unusual activities.
Of course, separation of duties may not be feasible for small, self-managed
associations. In such cases, Owens says, a board member or treasurer must be
very active in overseeing operations. And, regardless of size, every community
should review its financial and bank statements on a quarterly, if not monthly,
basis. Meanwhile, other internal controls include basic measures like updating bank
signature cards, not accepting cash or signing blank checks, and depositing checks
in a timely fashion.
Audits. The granddaddy of all checks and balancesrequired by a majority of
association bylawsis an analysis of your associations finances by an independent
accountant. According to the CAI pamphlet Tips for Protecting Your Association
Finances, your can obtain three levels of service from an accountant: compilation,
review, and audit.
In a compilation, an accountant presents the associations financial statements and
prepares year-end adjustments, but provides minimal analysis and no confirmation
of balances.
In a review, the CPA investigates record-keeping and accounting practices and
analyzes the statements, preparing disclosures on abnormal activity or unexplained
trends.
In an audit, accountants perform the most comprehensive examination of an
associations financial statements. Activities may include confirming bank balances,
making physical inspections, and tracing transactions to invoices and evidence of
payments.
Some experts feel strongly that associations should always opt for an audit to
obtain the highest level of assurance. Others say that small associations with less
complex operations may want to alternate between a review (which is less
expensive) and an audit. Either way, accountants recommend that associations
commission an audit or review on an annual basis as well as in special
circumstanceswhen large amounts of money come in from a mold or
construction-defect settlement, for example.
18

Glamour-Free Investing
The road to financial ruin is not always paved with illegal activity. Indeed, some
communities unwittingly jeopardize their assets through the investments they
make. Owens and Schiff both urge associations to invest their reserve funds in the
safest instruments possible, including FDIC-insured certificates of deposit (CDs) and
government-backed Treasury bonds, bills, and notes. Stocks, corporate bonds, and
municipal bonds can be too risky.
The number-one priority should be to protect the principal of the funds that you
have invested, Owens says. Moreover, Schiff says, your association should choose
instruments that best match its reserve fund. For example, if you plan to do a
major roofing project in two years, you can maximize benefits by locking up a CD
for that period.
To avoid potential problems, Schiff recommends that boards develop a protection
policy articulating investments the association can and cannot pursue with reserve
funds. A few years ago, during the go-go days of the stock market, a lot of
associations wanted to ride the wave, and they put their reserve money into
stocks, Schiff says. Im willing to bet that most of those associations didnt have a
reserve investment policy.
Covered in Full
Perhaps the area of asset protection most difficult to navigate is insurance. Boards
understand that they have a responsibility to purchase insurance, says John
Manougian, president of Silver Spring, Marylandbased John Manougian Insurance
Agency, but the extent to which they need certain coverage, and the nuances and
intricacies of these contractsthey are probably not familiar with.
According to Barbara Wick, your association first should identify its assets and
exposure to loss, and then seek out professional assistance to tailor coverage to its
needs. In terms of safeguarding community funds, insurers typically point to two
major policy types: liability and personnel coverage. (Of course, your association
should also have adequate property insurance to protect its physical assets.)
Liability. If a lawsuit has been brought against your association, liability insurance
helps preserve your assets by picking up the tab for the legal defense team and
settlement. The basic liability package, called commercial general liability, covers
claims involving bodily injury, medical payments, and personal injury such as
slander or libel.
19

However, if your board members and insurers determine that your association has
special chances of loss that could result in major claimsperhaps because the
community has a swimming pool with a diving board, or because the property is
situated in a tornado alleyyou should opt for greater coverage in the form of
umbrella liability protection. (Manougian and Wick both say that to minimize the
adverse effects of accidental lossesand, in some cases, to guarantee coverage at
allyour association should create a risk-management program. Under such a
program, for example, you might decide to remove your diving board altogether to
decrease the risk of someone getting seriously injured or killed.)
Your association will also need a directors and officers (D&O) liability policy, which
acts like medical malpractice insurance, protecting board members against wrongful
acts. These can include alleged mismanagement of association affairs, failure to
maintain adequate reserves, failure to maintain books and records, failure to
enforce rules, regulations, and covenants, and breach of contract. Absent D&O
insurance, Manougian points out, board members are personally liable.
Personnel. Meanwhile, personnel exposure includes fidelity insurance, also known
as blanket employee dishonesty coverage, which guards against theft of funds. To
make sure that all your key players are covered, experts advise that you extend
your fidelity bond to your management company. You also cant forget workers
compensation insurance, which offers protection when an employee sustains a jobrelated injury for which your association is held legally responsible.
While the dos and donts of protecting your assets may seem daunting, keep in
mind that the best defense by far is an educated and involved board. You can have
policies, procedures, and plans, Schiff says, but if no one is minding the shop, its
not going to matteryoure still going to have problems.
20
Reading #5: Healthy Wealthy and Wise

THE BEST WAY TO KEEP YOUR ASSOCIATION FIT AND TRIM IS TO TAKE
YOUR RESERVE FUNDING AND INVESTMENTS SERIOUSLY.
By John P. Poehlmann, RS
One of the primary responsibilities of association leaders is to preserve and
maintain the physical and financial health of their community. Impossible? Unlikely?
Daunting? No, no, and no. In fact, you can cover both bases for the next 20 to 30
years without too much trouble. It all begins with a comprehensive examination
known as a reserve study, followed by a long-range prescriptionideally conducted
with the help of a reserve professional.
The Reserve Study
As they age, your communitys common elements will need repair or replacement.
While your goals and management philosophy will dictate how you pay for them,
the best practice is to establish a reserve fund and collect regular monthly
payments, also known as a funding plan.
To start, youll need to conduct a reserve study that answers three fundamental
questions: What will it cost your association to repair or replace its common
elements? When will the common elements wear out? And, how will you pay for
these capital projects? As you explore these questions, consider using the services
of a Reserve Specialist (RS), a professional with extensive reserve-planning
experience.
Physical exam. Begin at the top, by reviewing the CC&Rs and any other legal
documents that identify the common elements that your board is responsible for
maintaining. Depending on your community type, these can include roofs,
downspouts, exterior walls, windows, boilers, mailboxes, streets, sidewalks, fences,
hallways, lobby furnishings, swimming pools, tot lots, and many other items. Then
review your operating and reserve budgets to ensure that no common elements
have been either overlooked or double-counted.
Armed with this component inventory, which usually includes 20 to 100 common
elements, you and your reserve professional conduct a visual examination,
quantifying each itemmeasuring it, recording its serial number, and so onand
assessing its current condition. Then review the normal, or useful, life of each
element and, based on its condition, determine when it will need to be repaired or
replaced. Finally, calculate the current and future replacement costs for each item.
21
Reading #5: Healthy Wealthy and Wise (cont.)

When you or your reserve professional submits the reserve study, your board will
know every common element for which its responsible, the scope of each (8,450
square yards of pavement, 209,300 square feet of painted exterior walls, and so
on), and when each item will need to be addressed.
Financial exam. Now its time to appraise your associations financial condition
and develop a funding plan. This financial exam begins with an assessment of your
current reserve fund status. You also must consider your associations overall
operating and reserve budgets, historical reserve contributions, and history of
special assessments and bank loans.
Paying the Piper
Which brings us to the question of how your association will foot the bill for its
planned capital projects.
Obviously you have to decide which funding option makes the most sense for your
community. Special assessments and loans are possibilities. But let me say simply
that as an RS professional, I think that long-term financial health is best managed
with a steady diet of stable contributions into a reserve account. Indeed, the great
benefit of a reserve study is that it allows you to budget well in advance for
everyday wear and tear.
Assuming youve been sold on the wisdom of a reserve fund, is there a certain
percentage of your budget that you should put into it? Actually, the rule of thumb is
that there is no rule of thumb. The amount you set aside will depend on many
factors. A 76-unit association in a single, four-story building would have much
smaller monthly reserve contributions than a 76-unit association spread among 19
buildings, with a pool and clubhouse.
That said, an RS typically recommends one of four funding plans that reflects your
associations short- and long-term objectives:
Statutory. This approach aims at complying with states statutes. In Michigan, for
example, an association must set aside at least 10 percent of its operating budget
in its reserve account on a non-cumulative basis.
Full. The goal of this strategy is to maintain your reserves at or near 100 percent.
For example, a common element that lasts 10 years and costs $10,000 should have
$3,000 in reserves after its third year. The least risky approach to reserves, full
funding demands the highest annual balances and, as a result, the highest
homeowner contributions.
22

Baseline. While each individual component may not be fully funded, baseline
funding pools all available reserves to ensure that the total balance of your reserve
fund doesnt approach or drop below zero during the projected period of the reserve
study. Thus, this approach offers the lowest homeowner contributions but the
greatest risk, because at certain times your reserve balance reaches zero.
Threshold. This method, which is a cross between full and baseline funding, is the
choice of many associations. Threshold funding is rooted in the baseline concept of
pooling the reserve funds, but the minimum reserve cash balance is set so that it
never goes below a certain, predetermined dollar amount during the 20- to 30-year
period of the study. This approach is less costly than full funding and less risky than
the baseline approach. Plus, it demands an adequate but not excessive level of
homeowner funding.
Safety First
Your reserve study has been completed, your funding plan is in place, and your
reserves are coming online. Is the financial health of your association assured? Not
yet.
Investments. If your reserve study is accurate, you wont actually need your
reserve funds until the projected repair or replacement dates. In the meantime, you
can put your money to work by investing it. As fiduciaries, your board should adopt
a written investment policy that emphasizes safety first, then liquidity, and finally
return on investment. Be sure to keep your principal safe and to comply with your
governing documents and any state or local laws.
You can often earn higher returns for longer time commitments, so among the most
suitable investments are such stable vehicles as certificates of deposits (CDs),
money markets, and U.S. Treasury bills. However, your board must look at when
your association will need its funds and build its investment program around those
needs. If you need your funds within six months, invest in a money market fund. If
you need them within six to 12 months, consider a six-month CD. As your
association projects out several years, it should consider a laddering approach, in
which you set up various investments so they mature in different years, based on
your future liquidity needs.
23

Checkup. Even the best reserve study is a highly educated guess. Many things
change over time, affecting the original estimates on timing, costs, and monthly
reserve contributions. After your study has been committed to paper, for example,
property such as signage or fences might be added to or deleted from your reserve
schedule. Likewise, several consecutive mild or harsh winters can dramatically
affect the remaining life of a roof, reducing or extending its replacement cycle.
Inflation rates change over time, as do investment returnsand boards
themselves. Thus, you or your reserve professional should conduct a reserve study
update at least every few years.
These are all good reminders that a reserve study is not carved in stone. Rather,
its a flexible tool that can help keep your community harmonious and healthy. And,
when you consider that it generally costs only a few thousand dollars to help you
protect millions in community assets, its clear that a reserve study makes good
business sense.
24
Reading #6: Cashing In

ASSESSMENTS WILL ALWAYS BE YOUR ASSOCIATIONS PRIMARY SOURCE
OF REVENUE. BUT THERE ARE ALSO WAYS TO GENERATE A LITTLE
SOMETHING EXTRA.
By Howard A. Goldklang, CPA, MBA
There is no getting around the fact that assessments are your associations main
source of revenue. Thus, your boards primary and overriding responsibility is to
properly assess its members to meet operating costs and fund replacement
reserves.
Having said that, you should always be on the lookout for other ways to generate
additional income for your community. When youre considering such an
alternative, ask yourself these questions: How will it affect your staff? What are the
direct costs? What are the indirect costs?
Alternative revenue sources can be broken into three categories:
1. Ongoing operations. You might be overlooking ways to make money from
your existing programs.
Fees. These can include move-in and move-out fees, as well as charges for storage
facilities and extra keys.
Laundry room. Do the fees you charge in your laundry room cover maintenance,
utility costs, and a bit more? Or, if your laundry room is operated by a vendor, is
your lease agreement competitive?
Fines. Dont be mean about it, but fines for such infractions as a late assessment
payment or damage to the party room are legitimate.
Memberships. Consider selling outside memberships to your pool, golf course,
marina, and other recreational facilities. Or, open them to the public on a fee-peruse basis.
Rentals. Rent out potential commercial space to shops and other businesses, rent
out your party room for social functions, make your swimming pool available for
lifeguard training, and so on.
In-unit service programs. Offer your residents a maintenance service that
performs repairs and other odd jobs.
25
Reading #6: Cashing In (cont.)

2. New opportunities. Another possibility is to offer new programs.
Easements. Get easement income by granting your state or local government use
of your property for a road-widening or sound-barrier project.
Antenna space rentals. Allow a communications company to place antennas on
your rooftops.
Lodging. If your association owns a home or unit within the community, rent it out
as guest lodging.
Vending. Dedicate space for an ATM or vending machines in exchange for a cut of
the revenue they generate.
Advertising. Solicit advertising for your newsletter.
Logo merchandise. Does your association have a logo? Put it on T-shirts, baseball
caps, key chains, mouse pads, and other products.
3. Investments. And, of course, you have your reserve investments, which,
depending on how they are managed, can generate quite a bit of revenue for
repairs and replacements. You first must consider safety and liquidity, but even
within those constraints you can maximize the yield on your associations
investments. Remember, the money is out there!
26
Reading #7: To Collect and Serve

HOW TO GET THE MONEY YOUR ASSOCIATION IS DUE WITHOUT BREAKING
THE LAW OR ALIENATING YOUR RESIDENTS.
By Christopher Durso
In one community that Gil Cross, cpm, cmca, used to manage in Minnesota, a new
homeowner fell behind on assessments right after moving in. Thus was begun a
pattern: The owner would become delinquent, the association would try to collect,
the associations attorney would get involved, the association would initiate
foreclosure, and finally, at the eleventh hour, the owner would pay. Then it would
start all over.
Within a year and a half, says Cross, now a manager with New Concepts
Management Group, in Minneapolis, we calculated that [the owner] had paid more
in legal fees than the monthly assessments due. Welcome to the sometimesillogical, sometimes-frustrating, but always-interesting world of collections.
Put it in Writing
Asking your residents if they want to pay their assessments is exactly like asking
Americans if they want to pay taxes. Of course they dont. But conscientious people
understand where their money is going and accept their obligation to pay it.
As Cross story suggests, its separating the conscientious from the not-soconscientious thats the real trick of association collections. When owners become
delinquent, how can you tell if they are suffering a legitimate financial hardship or
simply abusing the system? The key is to adopt a written collections policy that
leaves nothing to chance.
Basics. First, state clearly in your policy that all owners are obligated to pay
assessments. Explain why its important to the community and, therefore, to them
personally. List your assessment rate and frequency (monthly, quarterly, or yearly).
You might even want to spell out the details of your collections mechanismusually
a coupon book or a monthly statement. Says Cross, a Common Ground contributing
editor: Its all about keeping the numbers in front of the homeowners on a regular
basis.
27
Reading #7: To Collect and Serve (cont.)

90-day cycle. Then, outline the exact steps youll take when an owner is delinquent,
including specific late fees, interest, and other penalties. Set your timeline to reflect
your associations temperament and budgetary needs. Loura K. Sanchez, an
attorney who heads up the collections department for Orten & Hindman, in Denver,
suggests a 90-day process: After 10 days, send a friendly reminder (Oops, did our
letters cross in the mail?). After 30 days, send a more formal letter announcing a
late fee. A third notice at 60 days should be even more blunt, along the lines of
Look, you really need to address this, and if you dont, were going to turn it over
to legal counsel. Within this time, you should also encourage the owner to contact
the association to work out a payment plan.
Professional help. The final step is to refer the matter to a collections agency or
your associations attorney, who will begin a new cycle of letters and warnings.
Says Stephanie Quade, an attorney with Roberts Markel Guerry, in Houston: Our
approach is usually one of, start nice and see what you can get done by being a
little bit kinder and gentler. If the owner still doesnt respond, Sanchez says, your
association must make a decision. Do you file a lien and then sit on it until the
owner refinances or sells his or her house, at which time you collect whatever is
due? Or do you foreclose on the lien? In Colorado, where Sanchez practices,
associations also have the option of filing a lawsuit to seek a money judgment;
because its expensive and time-consuming, foreclosure is the absolute last option.
On the other hand, associations in Quades state, Texas, can also pursue
nonjudicial foreclosure, which is more direct.
Applied payments, etc. In the event that a delinquent owner responds to your
collections efforts, make sure your policy also specifies how any late payments will
be applied. That comes up all the time, Sanchez says. Weve got assessments,
late fees, attorneys fees, and interest, and the owner comes in and pays the
assessment and says, Wait a minute, youre just suing me to collect your
attorneys fees! Along these lines, list in your policy any fees for returned checks,
and state whether your documents allow acceleration for chronic delinquents,
which is when an association requires the entire annual assessment to be paid all at
once rather than in monthly increments.
A Very Harsh Reality
Within the parameters of your collections policy, there are additional steps you can
take to make your assessments go as smoothly as possible.
28

Communicate. Once youve adopted your policy, mail a copy to every resident or
post it in a public place. Keep the dialogue going. Publish reminders about due
dates, late fees, and so on in your newsletter and on your Web site. Quade also
suggests convening open forums specifically to discuss things like heres what the
community gains from payment of the assessments, here are problems weve had,
here are things weve solved. At every opportunity, urge your owners to call the
association if they run into financial problems.
Be sensitive. Emotions always run close to the surface in these cases, Quade
says. For most people, their home is the single biggest investment theyll make in
their whole life. Its embarrassing if they cant pay their assessment. Indeed, one
of the nations highest-profile foreclosures, involving an 82-year-old Houston widow
named Wenonah Blevins, happened in Quades back yard and quickly became the
epicenter of a statewide debate on association collections practices.
The bottom line is, you should be respectful in all your dealings with delinquent
owners. Always remember that the endpoint might involve forcing people from their
home. Keep your letters friendly and to the point. If youre discussing delinquencies
at an open board meeting, Quade says, dont mention people by nameor, if you
must, convene an executive session.
Be personal. Never underestimate the power of personal contact. If an owner is
late, pick up the phone or knock on the door, and find out whats going on. Its
been our experience that the ones that do that...have a much higher success rate
in getting that money, Quade says. But Sanchez cautions that while this can be a
very effective tool for board members, managers who do this might be seen as
attempting to collect a debt on behalf of someone else, which would put them
under the purview of the federal Fair Debt Collection Practices Act. Then again,
Quade recommends that all her clients adhere to the provisions of the act
throughout their collections processwhether theyre bound by it or not.
Go electronic. Make collections as easy as possible by allowing owners to pay their
assessments electronicallythrough funds transfers, an automated clearinghouse,
or other online systems. According to Cross, banks sometimes offer such services
to management companies as part of their banking arrangements. Just realize that
theyre not always free.
29

Be consistent. Perhaps the most important thing to keep in mind is that your
collections policy works only if you apply it equally. That doesnt mean you have to
treat everybody the same, Sanchez says, but be consistent in terms of the
process you follow and the criteria you consider when people approach you about
setting up a payment plan. Adds Quade: At the base of so many lawsuits we see
the perception by the owner that theyre being singled out or treated unfairly.
Being consistent also means being firm when you have to be. Never forget that
your association needs its assessment money to survive, and that your collections
policy exists because not everyone pays. Some boards find this aspect of
governance distastefuland it is. But its a reality, and sometimes its a very harsh
reality, Cross says. What the association has to consider is that [chronically
delinquent owners] are using the association as a bank. Its almost tantamount to a
loan from the association.
Be flexible. That said, being consistent doesnt mean you cant be human, too. In
most cases, Sanchez notes, a delinquent owner falls into one of two categories:
Either the owner is a chronic delinquent for whom the only option is to be
diligent and to force them to realize the implications of not paying. Or, much more
often, the owner is experiencing a legitimate financial crisissudden
unemployment, for example, or a medical problemin which case you should be
very flexible, Sanchez says, and work with them, because theyre going to pay
ultimately.
Adds Cross: And I guess thats what the problem becomestrying to weed out
the people you can work with to create a plan thats acceptable from the people
who are going to be confronted with the fact that, Gee, I really like living here, but
I cant afford it.
30
Reading #8: New Fannie Mae/Freddie Mac Underwriting Guidelines

FOR CONDOMINIUM MORTGAGES: WHAT DO THEY MEAN FOR YOUR
ASSOCIATION?
By: Carson M. Horton, RS
New Rules for Everyone
Of concern to all condominium buyers and sellers, is the new underwriting rule
requiring mortgage lenders to verify the community association in which the
condominium is located has a line item in their annual operating budget providing
for a reserve fund contribution totaling at least 10% of the associations annual
revenues. According to an article by Nena Groskind, in the July 2008 edition of
Condo Media magazine, the magazine of the New England Chapter of CAI, this new
lending requirement was adopted January 1st of this year by both FNMA and FHMC.
Considering the influence exerted over the mortgage lending industry by these two
secondary mortgage market giants, it is reasonable to suggest that virtually all
mortgage loans for condominium properties will now be subjected to this reserve
funding requirement.
FNMA and FHMC underwriting requirements are increasingly important to
community associations because, the recent collapse of the subprime lending sector
and the rapid disappearance of non-conforming lenders, mortgages on
condominium properties are going to be hard to come by if the association in which
the property is located cannot meet the new reserve funding requirements
mandated for conforming loans.
Do the New Rules Go Far Enough?
Lets begin by acknowledging the importance of reserves for all community
associations. Recognizing the importance of the reserve planning and funding
process is the first step in building a sound, long range financial plan for all
communities. That this fact has now been embedded in the credit analysis process
for mortgage lenders making loans on condominiums, must be viewed as a positive
development.
With that said, is it safe to assume the new FNMA/FHMC guidelines are an adequate
measure of the financial health of the community in which you live or are
considering the purchase of a condominium?
31

(cont.)
Unfortunately the answer is a resounding NO!
While there is no argument this is a major step in the right direction, a one
size fits all approach is very much in error when analyzing the reserve fund
requirements among different associations. To further cloud the issue is the
longstanding lack of any meaningful industry or regulatory standards for the
reserve study/funding process.
Although in recent years there has been an undeniable trend toward regulatory
oversight at the state level; it is safe to say even today, the majority of states
throughout the U.S. have little or no statutes requiring condominium associations to
prepare a reserve study or fund a reserve account. In the handful of states with
some sort of reserve fund regulations in place, the standards can vary substantially
from state to state.
Change is Good
Before reviewing the inadequacies of the current thinking on the subject association
reserves, lets consider the positive aspects of the underwriting guidelines adopted
by Fannie Mae and Freddie Mac at the beginning of 2008. The new guidelines will
result in the following beneficial results for virtually all community associations;
Will ensure all associations address the subject of reserves and funding of a
reserve account; with very little ability to maneuver around the new 10%
funding requirement;
Will ensure a certain level of reserve funds are accumulated by all
associations; even if the 10% requirement proves to be inadequate for a
particular association, it is still far better than having no reserves;
Will result in most associations obtaining a reserve study from a professional
provider; although as far as we know the new lending guidelines do not
dictate any standards for establishing the reserve funding needs of the
community, other than the 10% rule; the reality is most associations are
likely to end up with a professionally prepared reserve study;
Will no doubt increase the overall awareness and understanding of the
concept of reserves and reserve planning for community associations;
Will increase the level of accountability of builders & developers who create
new associations in the process of developing new housing;
Will increase the level of accountability of community management
companies, association Boards, reserve study professionals and the real
estate sales industry as a whole.
32

(cont.)
Caveat Emptor!
Individually and in their entirety any of the developments mentioned above
represent a positive step in the right direction for the community management
industry in general, and specifically buyers and sellers of condominiums. As with all
types of change there are certain risks and limitations to be considered before
declaring any such set of rules or regulations an unqualified success. Among the
more pressing concerns which all buyers, sellers, lenders and management
professionals should consider are the following;
Of the utmost importance is that the required 10% reserve contribution is simply
not enough; not for a new association, old association; large one or small one. The
correct reserve funding requirement for a community association is not a byproduct of the operating budget. The correct amount of money which should be
contributed to the reserve fund is, in every case, the outcome of an analysis of the
common area components within the community. This analysis is known formally as
a reserve study; performed by an expert such as a Reserve Specialist, who enlists
the expertise of more than one individual with differing areas of specialization and
works in collaboration with these specialists.
While an association may technically be in compliance with the new FNMA/FHMC
funding requirements, it quite possibility will not be making the appropriate
reserve contribution. A reserve fund could already be underfunded when the 10 %
contribution is made or quite likely a 10 % annual contribution will not be enough.
Again, the only way to determine what the correct level of funding should be and
whether an associations reserves are adequate to meet future funding needs is to
perform a reserve study. A well prepare reserve study will include an analysis of the
long term funding needs (in most cases thirty years) of the association. Part of this
analysis will be a statement as to the adequacy of the current reserve fund balance
in being able to meet the near term funding needs, in addition to the sufficiency of
the reserve fund for the long term.
There is a strong temptation for an associations members, Board of Directors, and
community manager to simply assume that if the reserve fund is being funded at
the required 10% rate, it is sufficient merely because it satisfies the FNMA/FHMC
lending requirements. In the absence of a current, credible reserve study buyers,
sellers and lenders alike simply have no assurance whatsoever that the
associations reserve fund is adequate at the present time or will be adequate in the
future. There is also a temptation to get something on the books at a cheap price,
just so the requirements are met.
Due to the rapid increase in demand for reserve studies from community
associations, the strong likelihood that any number of un-qualified, opportunistic
33

(cont.)
vendors will emerge in every region of the country, offering to prepare reserve
studies for anxious
associations who are concerned about the need to be in compliance with the
FNMA/FHMC guidelines. Suffice it to say the number of highly qualified firms in the
reserve study field is limited throughout the nation. A recent review of the
Community Associations Institute (CAI) vendor directory indicates the total number
of individuals who possess the Reserve Specialist (RS) certification is less than 150,
throughout the United States. With close to 300,000 community associations
nationwide it is easy to see that qualified reserve study providers are likely to be in
short supply and high demand well into the future.
.
Carson M. Horton, RS is a principal in the Oregon based reserve study firm HOA Services
group, LLC.
34
Reading #9: Dollars & Sense

by Gayle L. Cagianut, CPA
Question: Why is our auditor asking the board of directors and property manager
about services, such as landscaping, repairs, and so forth, that they perform for the
association? We sign a conflict of interest policy each year and comply with the
California Corporations Code in regard to conflicts of interest. What does this have
to do with our year end audit?
Answer: I commend your board and manager for signing conflict of interest
policies and being aware of the legal requirements. As you know, dealing with
members of the board or management team may be in the best interest of the
association, but those transactions should be fully disclosed and properly handled at
board meetings. CAI has an excellent publication, GAP #20: Conflicts of Interest,
which deals with this issue and gives examples of forms and board meeting format.
Question: But why is the auditor interested?
Answer: Generally accepted auditing standards require accountants to identify and
disclose related party transactions. In fact, the most recent audit risk alert issued
by the American Society of CPAs for community association directed the CPA to look
closely at this area during his or her audit.
Question: What are related parties?
Answer: According to the Audit Risk Alert, members of the organizations
management, the developer, the sponsor, along with the governing board, are
generally considered to be related parties. It may be difficult for the auditor to
identify related parties just by reading minutes or reviewing invoices. Often the CPA
will make inquiries to the board or manager to determine if there are related party
transactions.
Question: What is the auditor looking for in regard to related parties?
Answer: The most important aspect of related party transactions is to be sure that
they are disclosed to the membership. Thus, the auditor may include a footnote in
the report explaining the transactions. The CPA may also ask about conflict of
interest policies and the bid process to ensure that there are adequate controls in
place.
So, cooperate fully with your accountant. He is following auditing standards when
related party questions are being asked. It is in the best interest of the association,
and the board, if all transactions with potential conflicts are properly disclosed to all
of the membership.
35
Reading #10: Association Taxes - The Basics

by Gayle L. Cagianut, CPA
Your association is a non-profit corporation? True. Thus, as a non-profit entity you
owe no income taxes? False. This is a common misconception among board
members, especially those first time volunteers. If you do not understand your
association's taxes, don't feel alone. Community association taxes are very
complex. It is quite possible that even your personal tax preparer has little or no
knowledge on this subject. That is why it is important the Board chooses an
accounting professional who knows this industry and one who will make the best
choices for your association.
Unlike individual federal tax returns which are due three months fifteen days after
the end of the year (April 15th), association tax returns are due two months fifteen
days after the end of the fiscal year. Thus, for December 31 year end associations
the due date is March 15th. Like individuals, an association can get an extension of
up to six months to file their federal taxes. It should be noted that this is an
extension to file the tax return - not an extension to pay the taxes! Any taxes due
must be paid by the original due date, or the association will have to pay penalties
and interest.
So on what income does an association pay tax? This can get very complicated, as
will be described in the following paragraphs, but at the very least, the association
generally needs to pay tax on its interest earnings. Other items that may or may
not be taxable include laundry income, rental income from the clubhouse or other
common areas, and sales of goods or services to non-members. Generally,
membership income is non-taxable.
Associations have a unique tax situation found in no other area of tax law, in that
they have the choice of how to file their tax returns and what tax rate to pay - with
many rules and regulations surrounding these choices. An Association may file as a
homeowners' association using Form 1120-H, or may file as a regular corporation
using Form 1120. This decision can change annually. The association may file form
1120-H one year, then 1120 the next, then back to 1120-H the third year.
Additionally, some larger associations may be exempt from taxation and may file
Form 990. This is a permanent decision. The following paragraphs will attempt to
quickly explain the differences, but the explanations will just touch the surface
issues.
36
Reading #10: Association Taxes - The Basics (cont.)

Form 1120-H is the form that was specifically designed for homeowners
associations. It is the easiest to prepare. Non-exempt function income is taxed at a
rate of 30%. Non-exempt function income includes interest and rental income, net
of expenses. A tax savings hint to avoid being taxed on the rental income is to
assess the fee on an annual basis or as part of the regular assessment, rather than
as a per use fee. It is the per use fee which causes the income to be taxable. Thus,
if you have RV parking spaces you may decide assess the fee once a year rather
than monthly, or for clubhouse use you may choose add one dollar to everyone's
monthly assessments rather than charge a per use fee.
Form 1120 is the regular corporation tax form. It is much more difficult to prepare,
and can even cause membership net income to be taxable. But has a much more
favorable tax rate - 15% on the first $50,000 of taxable income. Another
advantage is that rental income from members may not be taxable. With proper
planning and budgeting, an association may be able to cut its taxes substantially, if
they are willing to plan accordingly. A common planning tool is Revenue Ruling 70604 which says that the membership may choose to have any net membership
income transferred to the next year or returned to the owners. This is an important
election that may benefit an association. The drawbacks are, however, that it
appears that this election may not be able to be used in consecutive years and it
may require the election to be made at the annual meeting. The board also needs
to be aware of the inherent risks that may be involved in filing form 1120. Some of
the more restrictive accounting procedures, such as segregation of operating and
reserve cash, adoption and adherence to a reserve study budget and adequate
accounting for various reserve items by category are issues to consider. Lastly, it
appears that there is additional IRS audit risk when filing form 1120. These matters
should be carefully weighed to determine whether the association qualifies to file
form 1120 and whether the tax advantages outweigh the audit risk.
Form 990 is for larger associations who are communities among themselves. These
associations are exempt from taxation. This designation is difficult to get, but some
associations have been successful in obtaining this tax status.
In addition to the federal tax returns described above, some states require an
income tax return.
37

Appendix A
Reading #10: Association Taxes - The Basics (cont.)

Take time to discuss your Association and its tax matters with your
accountant. Ask whether there are any tax savings tools which your
association could use. Discuss whether to file 1120 or 1120-H and whether
your current accounting procedures allow you to make this choice. Consider
whether or not to use Revenue Ruling 70-604. Evaluate the per use fees
charged currently. Evaluate IRS audit risk including any audit activity in your
area. Remember, the final tax responsibility rests with you, the Board
Member. It is you who will have to sign the return, and you must ensure that
the best interests of the association membership are being met.
38

Appendix A
Reading #11: Article for OR CAI Newsletter

The recent changes in statutes in Oregon and Washington regarding reserve
studies have generated considerable discussion about the purpose, reason
for and usefulness of reserve studies. In Oregon in 2006 the statute
requiring 30 year reserve studies was amended to also require a 30 year
maintenance plan for the components of each PUD or Condo Association
reserve study. Homeowners, managers, reserve specialists, accountants,
attorneys, developers and others spent a considerable amount of time
discussing how to provide maintenance plans in order to comply with the law.
In Washington in 2008 the condominium statute was amended to require a
reserve study for each association prepared by a reserve study professional
and a round of discussions similar to the Oregon experience has been
occurring.
The focus of these discussions has been how to comply with the statute
amendments and how to define a maintenance plan or a reserve study and a
reserve study professional. All involved have speculated on what the
minimum requirements for compliance are and on how to avoid being
accused of not complying with the law. What has been lacking in both states
has been a discussion of the real need and purpose of the reserve study and
maintenance plan.
The Board of Directors of each condo or PUD association has the fiduciary
responsibility to act in the best interests of the community that makes up the
association. The documents of each association give the Board the
responsibility of preserving, maintaining and enhancing the common property
under the jurisdiction of the association. A reserve study identifies the
components of the common property that need replacement or regular
repair, assigns a useful life to each component, assigns a replacement value
and calculates an annual contribution to the reserve fund that is set aside to
pay for the repairs and replacements. The reserve study is the principal tool
for the Board to ensure that it is filling its fiduciary duty to preserve,
maintain and enhance. Add a maintenance plan for all of the components in
the reserve study and the useful life could be lengthened; certainly it will
prevent the useful life from being shortened.
Economics are a key part of the puzzle: money is necessary in the reserve
fund to take care of the scheduled replacement and repair of the
components. If the reserve study is done in a timely fashion with accuracy,
the needed funds will be identified; if the association regularly assesses its
members the amount called for in the reserve study, adequate funds will be
available for repairs and replacements. If a maintenance plan exists and
maintenance is performed as scheduled, the useful life of components could
be lengthened and the amount assess annually for components could be
39

Appendix A
Reading #11: Article for OR CAI Newsletter (cont.)

reduced. If an association tries to lower assessments by putting less in the
reserve fund than called for, a problem is created when replacements must
be made and not enough money is in the fund. Likewise, if a maintenance
plan does not exist or maintenance is not performed as scheduled, a
component could deteriorate sooner than planned, and adequate money will
not exist for the repair or replacement.
Discussions such as those occurring in Oregon and Washington could lead to
problems with repair and replacement of common property components.
These discussions divert attention from the key issue of properly preserving,
maintaining and enhancing common property. When associations and their
advisors and service providers are more concerned about requirements of
statutes, enforcement of the law, keep expenses low than they are in how to
properly invest in their common property, condos and PUDs will age without
a plan for replacement and owners and boards will be faced with diminishing
property values and large assessments for replacing worn out components.
Homeowner and Condo Associations must realize that their fiduciary
responsibility requires them to talk about proper planning, through reserve
studies and maintenance plans, for the preservation of their common
property; instead of talking about how to avoid problems with the law and
how to keep assessments low
Jim Main., PCAM
HOA Services Group
40

Appendix A
Reading #12: Enron and Community Associations

THE NEW AUDIT STANDARDS
By Gayle L. Cagianut, CPA
Cagianut & Company, CPA
Ventura, CA
Bellevue and Newport, WA
What do Enron and your community association have in common? Hopefully,

you are not in the dire financial straits that Enron found itself in nor do you
have irresponsible corporate leaders at the helm of the association. But, both
of you have your financial statements audited by a certified public
accountant. Because some of the practices by some CPAs (and please
emphasize some, actually it should be very few) were not as above board
as they could have been, there was a backlash against the audit community
and a bill known as Sarbanes-Oxley was passed. Granted, this dealt with
public companies. However, based on the testimonies and situations found in
such audits as Enron, WorldCom and others, the American Institute of CPAs
(AICPAs) issued new Statements on Auditing Standards (SASs) that affect
ALL audits. The vast majority of these new standards are effective for years
ending after December 15, 2007. There are two of the Standards that
actually were effective for years ending after December 15, 2006. Because
they are part of the group of significant changes, these will be included in
this article, also. These standards were issued over a year ago, but CPAs
were given time to plan how they were going to implement the changes. In
our firm, we chose to implement them early, that is with the audits for the
year ending December 31, 2006 forward, so that we could work out any
kinks.
The overall change is terminology and a clarification of the audit process.
The auditors need a better understanding of the entity and its environment,
including internal control. This requires more documentation on the part of
the auditor. Additionally, the auditor must assess the risk that the financial
statements are materially misstated (from error or fraud) and plan their
audit accordingly. While this approach seems obvious to many, it wasnt
always that way in the audit world. Too often, the auditor got into a
checklist mentality and as long as they could check off that they did
something (the same something for every engagement), then they felt they
did their job. Now (shock!) the standards state that we need to treat each
audit on its own, and using our professional judgment, based upon our
assessment of the strength of the entity and its internal controls, we need to
design the audit accordingly.
41

Appendix A
Reading #12: Enron and Community Associations (cont.)

This article will attempt to summarize in, hopefully, an easy to understand
way some of these changes. It will explain why your auditor is asking for
things they have never asked for before or why they are doing something
differently. Each CPA firm will implement the changes somewhat differently
using their judgment, but the standards apply to all. In general, there is
little direct impact on the client, except that more time must be spent by the
audit team planning, assessing and documenting. This will result in additional
fees and some additional interaction, especially in the first year, with those
knowledgeable of internal control processes. Below I will outline some of the
areas that I feel will have a direct impact on the management company
and/or the Association.
Audit Documentation
This requires that the auditor date the report as of the time that we feel
comfortable that we have all of the information that we need to form an
opinion on the financial statements. That, generally, would be when the
report (or in our case, draft report) is issued.
How does this affect the Association?
The change to you, the Association, is if the CPA issues the draft report
without having received the attorney letter, a copy of a bank statement or
other important documentation. This is often done to get a discussion copy
out to the Board, especially when we do not expect that documentation to
change the report. We, generally, date the representation letters the same
date as the report and send those out with the draft. Under the new
requirement, if the representation letters get signed and returned and it
takes another month to get the attorney letter or bank statement, we are
now not in compliance. We have to go back to you, the Association, and get
assurance that everything is the same up to the date of receipt of the
attorney letter or bank statement and may need to re-date the report. Thus,
in our firm, we will choose to hold off on issuing draft reports, in most cases,
until we have all of the documentation that we need.
Management to Ensure that Financial Statements are in Accordance
With Generally Accepted Accounting Principles
We need to ensure that the financial statements are complete, accurate and
have required disclosures and that there is someone at the client that can
verify this.
We can still assist in preparing the financial statements and footnotes, but we
need to be sure that someone can review these for accuracy. We will need to
assure ourselves that someone could, if needed, prepare full accrual financial
42

Appendix A

statements and/or is aware of what is necessary to prepare full accrual
financial statements. One area of concern is whether the Association and/or
management company is aware of the required disclosures/footnotes. To
assist you in this process, we are providing a footnote/disclosure checklist
that you should use on each and every audit. We will be asking you to sign a
statement saying that you will do so.
Risk Assessment
We need to document the entity and its environment, including internal
control.
The initial start up year with a management company and/or an association
will take more time and energy than in the past, just to ensure that the
entity and its internal controls are documented, that the risks are properly
assessed, that the audit is planned according to those risks and that there
are adequate procedures throughout the audit process. If an Association
stays with the same management company and doesnt have unusual
transactions occurring, such as litigation settlements, the subsequent years
should be less intensive.
Report of Internal Control
Significant control deficiencies and/or material weaknesses identified in the
audit must be communicated in writing to management and those charged
with governance.
We have always issued management letters, which included items that we
find during the audit that we feel, should be brought to the attention of
management. However, these are not significant control deficiencies or
material weaknesses. We will continue to issue management letters.
However, based on this new guidance some issues that were previously a
management letter point or an issue that we felt could be resolved with
additional audit procedures now has to be disclosed in a report of internal
control. Thus, the Association could get a management letter and a letter of
internal control.
The most common points that we have found requiring a letter of internal
controls:
Inadequate segregation of duties without board oversight. If one
person does most of the accounting and it does not appear that the
Board closely reviews and has separate controls in place, this could be
an issue. We do not find this often, except in self-managed
associations.
43

Appendix A
Lack of client expertise in financial accounting and reporting. As noted

above, there needs to be someone who would be able to prepare a
GAAP basis (full-accrual with footnotes) financial statements. In a
small management company or self-managed association, this may be
an issue requiring disclosure.
Identification of a material misstatement in the financial statements
that was not identified prior to the audit. This is the most common
reason for a letter of internal control. If we have to materially adjust
the financial statements for any reason other than conversion to fullaccrual, we may need to include the adjustment as a significant
deficiency. The point being that someone should have caught the error
before it got to us.
New Terminology/Wording
The new audit standards stress the importance of management and Boards
to accept responsibility for the financial statements. They also have new
terminology for the auditor (some of which was referred to above).
At times, we may use an engagement letter that encompasses more of the
new standards. Because the wording is new to most people, we feel that it is
best if we err on the side of too much information! In the future, we should
be able to condense the engagement to fewer pages, but until these new
standards are more accepted and known, the engagement letter will seem a
bit more imposing.
To re-iterate the terminologies have changed somewhat, but the intent and
focus of an audit has not changed, in my opinion, from what it was in the
past. Enron and World Com brought to light the fact that management was
not accepting responsibility for the financial statements and that some CPAs
were too concerned about getting and keeping the engagement, rather than
being the independent, skeptical outside party that they should have been.
These new standards just remind us of those facts, and in more detail,
govern the audit process and required documentation.
44

Appendix A
Reading #13: Questions to Ask Before Raising Assessment

By Gregory J. Salvatore, CPM, CMCA, PCAM
This is a sensitive issue. It can be very disruptive when a board has to inform
its residents that their monthly assessments are going up. Or even worse,
when a special assessment has to be levied due to lack of proper planning
and foresight. If handled improperly, this already-tense situation can spawn
a truly divisive atmosphere that will have board members scrambling to
explain their intentions and their methods.
Of course, no one ever wants to raise assessments. But for the vast majority
of well-managed community associations, increases are nominal and
implemented as a way of keeping up with the rising costs of providing
desired services. For some communities, increases mean catching up after
years of denial and deferred maintenance; they represent the first steps
down a path to recovery from poor decision-making.
All of this means, right or wrong, that board members and managers need to
think of their budget in terms of this one question: Should you raise
assessments?
Just remember, streamlining is good, but its important not to over-simplify
your budget process. Even though your association may have previously
conducted a replacement reserve study, and your board may have a good
understanding of where funding levels need to be in order to meet your longterm financial goals, things change, and its important not to be caught
napping. The budget process should include a review of not only your annual
operating income but also your replacement reserves. The board cant
assume its plans are cast in stone. Plans have to be fluid and dynamic.
Whats likely to happen to any business that doesnt adapt to changes in the
marketplace? It will fail. For a community association, failure can mean
lowered property values or large special assessments.
From this one question spring five others that you need to ask yourself
during the budget process. The answers to these questions, and others like
them, will help you figure out if an assessment increase is necessary or
warranted.
1. What are your community's needs, policies, goals, and objectivesfor the
coming year and beyond?
Try to answer this question well before your budget is finalized. In fact, it's
45

Appendix A

(cont.)
something you should ask yourself throughout the year as well. Why?
Because things change.
During the planning process, the board needs to be comfortable in truly
understanding what its residents want. In most communities, the basics
usually include a safe, comfortable living environment and policies that
promote a proper balance between individuality and a sense of belonging
within the community. The trick is delivering this concept in a form thats
acceptable to and embraced by a majority of your residents.
The best way to gain this kind of understanding is to ask. Solicit information
through surveys, newsletters, websites, and any other medium that you
think would work for your community. This feedback is important, as it
should help your current boardand future boardsmove in the direction
that your residents have chosen.
Some boards have a tendency to act within a vacuum. Or they think they
understand the needs of an 800-home community based on the reactions of
the same 25 people who show up at the monthly open board meeting. What
about the other 775 owners? What concerns do they have? What services do
they want the association to provide? Granted, feedback isnt always easy to
come by, but that doesnt mean that you shouldnt try to get it.
This type of question sounds philosophical, if not rhetorical. Nonetheless, you
cant ignore it. It sets the tone and direction for your community and allows
for change to take place when the needs and desired lifestyles of your
residents change.
2. Which services do you require, and which services do you desire? Places to
look for your associations required services are in its governing documents,
city or town codes, and state and federal laws. Presumably your documents
mandate that the association provide such things as insurance, maintenance,
and funds to be set aside for the future repair and replacement of commonarea elements. This would mean that funds are required for the upkeep of
the communitys infrastructure, including roadways, utility delivery systems,
roofs, elevators, heating and cooling equipment, fire-safety systems, pools
and other amenities, and a whole host of items that are specific to your
association.
46

Appendix A

(cont.)
Be sure you dont rely merely on your governing documents. For ex-ample, a
fire-safety system is a common element that might be affected by both the
governing documents and local or state codes. The documents might require
that this common element merely be maintained properly; the state code,
how-ever, may require that the system be tested twice a year. You have to
make sure that there are funds available to satisfy both requirements. Its
really not an option.
Desired services, on the other hand, usually are considered discretionary.
Such line items might include funds allocated for a social committee to hold
community-sponsored events, or money in the landscaping budget for the
planting of annual flowers. Desired services reflect the preferences of your
residentslike the number of times per week they want their trash picked
up. There probably arent too many communities whose governing
documents stipulate the number of social events that must be held, or the
number of flowers that must be planted, or the number of times during the
week that trash must be picked up; but if your residents have an opinion on
them, they might have to be factored into your budget.
3. What have your operating costs been over the years, and are there any
patterns of extraordinary costs? Depending on the age of your community
and the number of budget cycles its seen, historical operating costs can be
very relevant. This doesnt mean that you cant control costs by doing things
differently. But whatever policies you enact, the level of service desired
shouldnt sufferespecially if demand remains high among residents.
Extraordinary costs need to be better understood and properly planned for.
Snow removal is a good example. At one of our best-run associationsa
community of 350 townhouse-style homes with a pool and clubhouse, tennis
courts, walking and jogging trails, and resident gardening areasthe
members of the board and each of the committees established to help the
board get salient information take their responsibilities very seriously.
Everyone does a great job, in factbut theres one line item that is
continuously under budgeted. The board always seems to make statements
like, Well be fine if it doesnt snow in Nov-ember and December. Seems
rather silly, especially considering we live in New England. Why not properly
budget that line item and deal with an excess instead of a deficit?
47

Appendix A

(cont.)
4. What cost changes do you know about for services and materials? A
booming economy can translate into, among other things, significant
increases in construction costs.
This means that you cant pay for the materials and labor costs to put on a
new roof with the money you set aside to do the job a few years ago. If
youre not willing to pay the new prices, you wont get the job you expect.
Its fool-hardy to think that somehow the rest of the world is affected by
economic changes but that your monthly assessments mustnt increase.
This gets at a not-infrequent occurrence: assessment phobia. A community
should not be proud of the fact that it hasnt raised its assessment rate in a
number of years. If you and your community association find yourselves in a
similar state of mind, ask a few hard questions: How is it that youve been
able to insulate yourself from the rest of the economy, where prices have
increased? What is it that youre not doing to properly maintain your
community? Do you realize that you might be stealing from your future in
order to live for today?
5. What have property inspections revealed? Continual inspections will help
you determine if your common-area elements are performing as anticipated.
If theyre not, and their life cycles are diminished due to extraordinary wear
and tear or adverse weather conditions, then you need to adjust the repair
and re-placement schedules.
So, should you raise assessments? Your responses to these five questions
should be helping you zero in on your answer.
If you need a final trick, try this: Underestimate income and overestimate
expenses. This will allow the board to do everything thats necessary for the
preservation of the community and stick to its goals. And it will help
eliminate the counterproductive dialogue that can plague the budget process,
such as, Can we really do this now? Its not in the budget. Some
communities dont fix roofs, of all things, because of this attitude.
48

Appendix A

(cont.)
We should all strive toward the pursuit of the perfect, harmonious
community. Keep in mind, however, that perfection rests in the perceptions
of each individual. No matter what system is put in place, it wont meet with
the approval of everyone. Its been said: Community living is easy until the
first person moves in. That may be true, but a community association is a
form of property ownership that can deliver huge benefits to a lot of people.
Following some basic procedures and applying common sense can help you
attain your goals and reduce or even eliminate questions about your
methods.
So to get back to our big question, whether to raise your assessments, if an
increase is needed and warranted, clearly the answer is yes. Document the
path to your decision, and communicate your plans to the members. Lastly,
monitor and evaluate your plans. Sometimes the best thought out approach
just doesnt work out the way everyone expected it to. Dont resist change.
At the time this article was written, Gregory J. Salvatore was president of
RoBeck Management Corp., in Westwood, Massachusetts.
Originally published as Should You Raise Assessments? Yes, No, and
Maybe, Common Ground, May/June 2000.
49

Appendix A
Reading #14: How Might a Community Association Answer the

Five Questions?
By Gil Cross, CPM, CMCA
Community: Phantom Hills Homeowners Association
Size and layout: 110 acres; 176 single-level town homes comprising 40
three-unit buildings and 28 two-unit buildings. Individual lots are slightly
larger than the footprint of the building, allowing individual patios at the rear
of each home.
Appearance: Very attractive, entry monuments, ponds, excellent
landscaping.
Completed: 1992
Budget: $240,768
Monthly assessment: $114
Recreational amenities: None.
(However, the property is immediately adjacent to a large regional park that
offers a trail system, athletic fields, and tennis courts.)
Common area: Green space, with parking areas, sidewalks, private streets,
and common-area lighting.
Reserve study: Completed recently; has illuminated the associations
financial path and shown a need to increase assessments.
What are the communitys needs for the coming year and beyond? The
reserve study has disclosed the level of financial commitment required to
meet the associations basic goals of maintaining and enhancing the
property.
Which services are required, and which services are desired? Specifically,
homeowners have challenged the current grounds contractors ability to meet
their expectations. They want better.
What have operating costs been over the years, and are there any pat-terns
of extraordinary costs? The homeowners have come to realize the need for
an operating contingency fund to address concerns such as storm losses not
covered by insurance (including damage to trees and shrubs).
Are there any significant cost changes for services and materials? The cost of
grounds maintenance is up due to changes in the contract specifications and
the rising cost of labor.
50

Appendix A
Reading #14: How Might a Community Association Answer the

Five Questions? (cont.)
What have property inspections revealed? Tree canopies should be thinned to
reduce susceptibility to wind damage and promote better growth form.
Certain landscape features that are difficult to maintain can be altered to
reduce long-term costs, changing from turf to a different ground cover,
without diminishing the overall appearance of the property. However, these
changes will require an initial investment.
Should Phantom Hills raise its assessment rate? Yes. An increase of about 10
percent, to $125.40 per month, is warranted, for a total annual budget of
$264,844.80.
Approximately 60 percent of the increase will go toward the upgrade in the
grounds maintenance and increased labor costs of the grounds contract. Another 30 percent is for the initial phases of tree trimming and grounds
modifications, and the remaining 10 percent of the increase will go toward
establishing a contingency fund for unanticipated or extraordinary expenses.
Without the increase, Phantom Hills will be tempted to neglect its replacement reserves in favor of making popular improvements in the grounds
maintenance. In this case, failure to increase the assessment would be a
failure to invest in the associations future.
At the time this article was written, Gil Cross was an association manager
with the Condominium & Association Management Group Inc., in
Bloomington, Minnesota.
Originally published as A Case of Need: How Might a Community Association
Answer Five Questions? Find Out by Tracking a Fictitious Association Through
the Process, Common Ground, May/June, 2000.
51

Appendix A
Reading #15: Seven Ways to Violate the FDCPA & How to Avoid
Them
By Thomas C. Schild
Collections dont have to be a stickup. In fact, they cant benot according to
the federal Fair Debt Collection Practices Act. For the first time in nearly a
decade, the year [2002] began with a gloomy economic forecast, including
threats of recession, layoffs, and stock-market volatility. Meanwhile,
consumer debt continues to increase and annual personal bankruptcies are
expected to remain at well over one million.
With economic uncertainty on the horizon, community associations
could face a rise in the number of homeowners who fall behind on their
assessments. Now is the time to implement collection procedures that
comply with your governing documents as well as state and federal lawand
that treat your residents in a fair and equitable manner.
Rules of the Game
In addition to provisions in your governing documents and state laws
regarding liens, foreclosure, and suits, collection of association assessments
is also affect-ed by the federal Fair Debt Collection Practices Act (FDCPA).
This law requires that debt collectors who regularly collect consumer debt be
fair in dealing with debtors. Among the acts specific mandates:
1. Written and oral communications must inform a homeowner that the
communication is an attempt to collect a debt and that any information
obtained will be used for that purpose.
2. A first notice must inform homeowners that they have 30 days to dispute
the debt and request verification of the debt.
3. Collection action must stop if the homeowner disputes the debt or
requests verification in writing within the 30-day notice period.
The FDCPA also prohibits certain actions, such as:
4. Collecting any amount greater than the debt (including interest, late fees,
and cost of collection) unless permitted by the agreement creating the debt
usually your governing documentsor by state law.
5. Depositing a check post-dated by more than five days unless written
notice of intent to deposit is provided to the homeowner between three and
10 days prior to deposit. This helps your owners avoid surprises or bounced
checks.
6. Threatening or implementing non-judicial action to take or disable
property if theres no present right to possession of the propertyor theres
no present intention to take the property.
7. Communicating with a homeowner regarding a debt by postcard. This is to
ensure privacy.
52

Appendix A
Them (cont.)
The consequences of attempting to collect assessments in violation of the
FDCPA can be substantial. Violations of this law are subject to damages of
$1,000 for each instance. And, a debtor may recover attorneys fees for the
cost of enforcing the FDCPA.
Debt or Not?
Although the FDCPA was first enacted in 1977, there remains some
uncertainty as to whether it applies to collection of community association
assessments. Several federal and state trial courts ruled in the mid-1990s
that assessments were not consumer debt covered by the FDCPA. These
court rulings were based on the view that the law applied only to debt
created by an extension of credit.
However, more recent court rulings have hewed toward the view that
assessments are indeed consumer debt subject to the FDCPA. This opinion
was set down by a federal appeals court for the first time in Newman v.
Boehm, Perlstein & Bright, a 1997 decision in which the U.S. Court of Appeals
for the Seventh Circuit concluded that extension of credit wasnt required for
association assessments to qualify as consumer debt. Of course, the Newman
decision is directly applicable only to community associations located in the
Seventh Circuit, which encompasses the states of Illinois, Indiana, and
Wisconsin.
A Florida appeals court, also in 1997, disregarded the Newman decision and
ruled that condominium assessments arent consumer debt. Calling the issue
of whether the FDCPA applies to collection of condominium assessments a
difficult one, the court commented: The federal courts are groping for a
principled, logical, and consistent interpretation of a statute that is poorly
drafted and whose true scope appears hopelessly lost in its circular
definitional scheme.
In the past three years [1997-2000], however, the federal appeals court for
the Tenth Circuitwhich includes the states of Colorado, Kansas, New
Mexico, Oklahoma, Utah, and Wyomingalong with federal trial courts in
Maryland, California, Arizona, and Louisiana have, like Newman, specifically
ruled that association assessments are consumer debt subject to the
requirements of the FDCPA. Plus, several other federal appeals courts, in
cases not involving association assessments, have ruled that there doesnt
have to be an extension of credit for a consumer debt to be covered by the
FDCPA.
This issue is sure to be subject to further interpretation and analysis. But, in
light of the clear trend of recent court rulings, its nearly settled that the
FDCPA does in fact apply to the collection of association assessments.
53

Appendix A
Them (cont.)
Collector Editions
What does this mean for associations, their managers, and their attorneys?
The FDCPA applies only to the actions of a debt collector as defined by the
act. Generally, this means a person who is engaged in the collection of
anothers debts.
Boards. Therefore, the FDCPA doesnt apply to any action taken directly by
an association through its board of directors or officers. Where residents
have challenged a homeowner association or condominium in this area,
courts generally have ruled that the association isnt subject to the FDCPA
because its not a debt collector as defined by the act.
However, a New Jersey court ruled in 1999 that a condominium association
recorded a lien in violation of the act. And, in 1998, a federal trial court in
Maryland ruled that although a homeowner association wasnt subject to the
FDCPA, it might be liable for breach of good faith and fair dealing if it knew,
or should have known, that its attorneys collection practices violated the
FDCPA.
Attorneys. For association attorneys, its clear that where the attorney is
regularly engaged in the collection of assessments or other consumer debt,
the FDCPA does apply. Thus, unless the collection of assessments is done
only on an occasional basis and is a very small part of the attorneys law
practice, the act is binding.
Managers. What is somewhat less clear is the applicability of the act to
community association managers. The 1999 decision of a federal trial court
in Minnesota, in Alexander v. Omega Management, concluded that the FDCPA
didnt apply to the actions of a management company to collect homeowner
association assessments where the management company was responsible
for collecting assessments before they became overdue. In this case,
because the management company spent almost all of its time managing and
maintaining the property and devoted less than three percent of its
operations to collecting past-due assessments, the court ruled that the
company wasnt a debt collector as de-fined by the FDCPA.
54

Appendix A
Them (cont.)
However, theres no certainty that other courts would similarly conclude that
a management company isnt a debt collector on the basis that collecting
delinquent assessments is a small portion of the management responsibility.
So long as a manager regularly engages in the collection of unpaid accounts,
the percentage of time relative to other management tasks may not be
relevant. This is especially true where management is engaged only for
financial-management services and where assessment collection makes up a
substantially greater proportion of the services provided.
Its also unclear whether managers would be exempt from complying with
the FDCPA where a delinquent account is inherited from a prior management
company or a self-managed association. Without clear guidance from the
courts, managers could be liable for not abiding by FDCPA procedures
especially in cases in which they dont have responsibility for collecting an
account prior to the debt becoming past due.
With so much still uncertain, the only sure bet seems to be that the
applicability of the FDCPA to community association assessments will
continue to evolve through litigation alleging violations of the act.
Clarification may also arrive in the form of legislative amendments,
administrative rulings, and regulations issued by the Federal Trade
Commission.
Meanwhile, with near-unanimous agreement among the courts that
community association assessments are consumer debt covered by the
FDCPA, and faced with the possibility of a $1,000 fine for each violation,
association attorneys and managers would do well to carefully follow FDCPA
procedures and requirements when collecting assessments. Its good
business senseand, not coincidentally, the fair way to treat your residents.
At the time this article was written, Thomas C. Schild was a partner in the
law firm of Silverman & Schild, LLP, in Silver Spring, Maryland.
Originally published as Your Assessment or Your Life, Common Ground,
May/June 2000.
55

Appendix A
Reading #16: Fair Disclosure

In order to comply with the Fair Debt Collection Practices Act (FDCPA),
attorneys and managers who regularly engage in the collection of overdue
association assessments should:
y Notify debtors in any communicationswritten and oralthat the
communication is an attempt to collect a debt and that any information
obtained will be used for that purpose.
y Provide written notice that a homeowner has 30 days to dispute the
debt and request verification of a debt.
y Stop collection action if the debt is disputed and until verification is provided.
y Provide verification of the debt upon written request.
y Review the other requirements of the FDCPA and comply with any
applicable procedures. Although compliance may seem straightforward,
the act contains numerous ambiguities as to whats required and whats
prohibited. Recognizing that the provisions of the act could use some
clarification, the Federal Trade Commission (FTC), in its 2000 annual
report regarding the FDCPA, recommended amendments that:
y Require notice of debtor rights to be clear and conspicuous.
y Permit collection activity within the 30-day period after notice of the
debtors right to dispute the debtso long as the debt collector hasnt
received written notice disputing the debt or requesting verification.
y Exclude attorneys who pursue debtors solely through litigation from the
definition of debt collector.
y Modify the FDCPA exemption for collection of debt that was not in default when it was obtained to focus on the nature of the overall collection
activities rather than on the delinquent status of a particular debt. Since
association managers generally are responsible for collecting assessments
when first due and not delinquent, this exemption would make clear that
managers arent debt collectors subject to the FDCPA.
y Authorize the FTC to issue model letters or forms, the use of which
would be deemed to be in compliance with the act.
56

Appendix A
Reading #17: How to Avoid an IRS Audit

By Peggy McGinnis, MST, CPA
At best, an IRS audit is a high-cost nuisance. At worst, it is a serious financial
attack on your association. Some homeowner associations have been targets
of unexpected audits by the IRS, and have been hit with huge back-tax bills.
Audits are rare, but they can happen, and the record-keeping and
management of your association should be based on that assumption. The
best way to avoid an audit is to constantly prepare for one.
Do Roll Overs by the Book
The associations that were hit with back-tax bills had exceptionally large
reserve funds, fattened by substantial settlements from construction defect
lawsuits. They also had filed an 1120 income tax return, as opposed to the
1120-H return. 1120-H is designed specifically for homeowner associations,
and taxes associations at a flat rate of 30 percent. 1120 is a corporate tax
return that can result in lower taxes than 1120-H.
For associations that file an 1120 return, there are a few ways to treat
excess operating funds that otherwise might be taxable membership income.
In Revenue Ruling 70-604, the IRS allowed an association to exclude excess
membership income from taxation by returning the excess to its members.
Pursuant to this ruling, an association can make an annual election to return
the excess in one of two ways:
y Refunding the excess to the members
y Applying the excess membership income to the next years assessments
The first method poses little risk of an audit. The association simply refunds
each unit owners share of the excess membership income. However, the
second method, the roll over of excess funds from one year to the next, is
especially prone to IRS inquiries. When the roll over method is used, the
association should make sure that the amount rolled over is absorbed in the
following years.
In some cases, the association may treat part of its assessment
income as nontaxable contribution to capital. To do so, it must meet the
following criteria:
y Its budgets and financial statements delineate between operating and
cap-ital reserve activities
y Replacement fund study supports the need for capital improvements
y Cash accounts for operating and capital purposes are segregated
y Tax return treatment clearly distinguishes capital transactions from
operating transactions
57

Appendix A
Reading # 17: How to Avoid an IRS Audit (cont.)

Documenting the associations specific action is essential. If the IRS can find
no written record of the roll over election by the association membersnot
just the boardmade prior to the filing of the years tax return, they will
conclude that the election was bogus, and that the funds are fully taxable at
the appropriate corporate tax rate. Every association should adopt
resolutions at its annual meeting to cover how owners want to dispose of
excess operating funds. If no excess funds exist, ignore the election
resolution. The scenario continues into the next year as well. Lets assume
these funds (properly documented and reported in the tax return) were not
used in the next year as intended. This also can call the election into
question. How do you avoid this situation? Do what the resolution implies:
refund the excess to the owners, transfer the excess into capital reserve
investment accounts, or modify the new years budget so there is a
membership loss to absorb the roll over excess from the prior year.
Document Expense Allocations
If you report interest income on the associations tax return, assume the IRS
will be keenly interested in what expenses were allocated against it, and in
other non-exempt or nonmember income to lower the taxes due.
The main pitfalland it applies to forms 1120 and 1120-His failure to
create the thorough records the IRS demands to substantiate expense
allocation against various types of income. This is especially true of many
small, self-managed condominiums that lack mechanisms to track expense
categories. Consider an association with amenities that are offered to
nonmembers or guests for a fee. The IRS will ask these associations to
document the reasoning for their expense allocations (for example, hours of
janitorial services).
58

Appendix A

Be Prepared
Audits are rare, but your association should always be prepared for one.
Maintain thorough records. Whether your association files an 1120 or an
1120-H return, any IRS audit will require review of the following documents:
y
y
y
y
y
Copies of tax returns for the years immediately prior and subsequent
to the year under audit.
Financial books including general ledger, cash receipts, and cash
disbursements.
Minutes of all association membership and board meetings, especially
copies of any elections passed by the general membership on handling
of excess membership income.
Copies of annual budgets.
Copies of banks/brokerage account statements holding segregated
capital improvement funds (If an association claims that part of its
assessment income is a nontaxable capital contribution, these funds
should be segregated and not used for normal operating activities. The
IRS will frown upon loans from capital reserves to everyday
operating funds.)
Invoices and canceled checks to support expense deductions, including
payroll, arranged in categories as they appear on the return (i.e.,
repairs and maintenance, utilities, supplies, etc.)
Whether selecting property management firms, attorneys, and account-ants,

make sure they are familiar with IRS rules. Tax laws are defined by a
continuously evolving set of IRS rulings. Ensure that your association
professionals stay abreast of ever-changing IRS interpretations. Your
property manager, for example, needs to know how to document the
allocation of various expenses so your association can properly compute its
taxable income and file the return (1120 or 1120-H) that is most
advantageous. Your association should consult at least yearly with both legal
and accounting experts who make it their business to understand community
association issues. The best way to avoid an audit is to prepare for one, and
to practice careful, accurate accounting.
59

Appendix A

If Your Association Is Audited
If the IRS audits your association, you can take steps to minimize its effect:
Leave adequate time to prepare. Scrutinize the audit notice to determine its
scope and the various financial records that will be needed for the review
process. Usually the IRS will reschedule to a more convenient time if you ask
them to do so. Good up front organization will help the audit process run
smoothly and may reduce professional time and fees.
y Hire an accountant to handle the audit. If there was ever a time to hire
an expert, this is it. Those who prepared the tax return are most
familiar with the return under review, and usually have prior
experience with IRS audits.
y Promptly get your complete records to the accountant. Even with outside help, your associations treasurer or a board member will likely
have to gather the documents necessary for the audit. The sooner the
accountant receives these documents the better.
y Consider the costs of appealing IRS adjustments. Even if there are
adverse adjustments to your tax returnwhich the association feels
are unjustan appeal isnt always the best way to fight it. Appeals
incur professional fees. Its best to weigh your options, and decide
whether you can preserve more of your reserve funds by simply
paying these additional levies or fighting them.
At the time this article was written, Peggy McGinnis was tax manager for Glenn
Ingram & Company Ltd., a Chicago-based accounting firm.
Originally published as Avoiding IRS Audits: How Your Association Can Avoid the
Scrutiny of the IRS, Common Ground, September/October 1995.
60

Appendix A
Reading #18: Tax Returns: Common Mistakes and How to Avoid

Them
By David B. Price, CPA
Audits are rare, but they can happen, particularly when an association makes silly
mistakes.
1. Failing to review. Someone, besides the person preparing the tax return, should
review the tax return for obvious errors and/or omissions. Avoid careless errors;
check all calculations carefully.
2. Forgetting the employer identification number. If the association does not have an
EIN, apply for one using Form SS-4, Application for Employer Identification Number.
If the association has not received its EIN by the time the tax re-turn is due, write
Applied for in the space for the EIN.
3. Filing late. File on timeeven if you cant pay the tax. An association may have
pay late fees and could lose the right to file Form 1120-H if it doesnt file its tax
return by the due date including extensions.
4. Using the wrong tax rates. The IRS scrutinizes taxpayers computations. Form
1120-H is a flat tax rate of 30 percent. Form 1120 is a graduated tax rate ranging
from 15 to 39 percent.
5. Filing an incomplete tax return. Attach forms, schedules, supporting statements,
and explanations. Complete every applicable entry space on the forms. If more
space is needed, attach separate sheets, using the same size and format as the
printed forms. Transfer the totals onto the printed forms and put the associations
name and EIN on each sheet.
6. Miscalculating. Its permissibleand easierto process your tax return if you
round off all amounts. Round up to the next dollar all amounts that are 50 cents or
more. Round down all amounts that are between one and 49 cents.
7. Not filing all related tax forms. The association may have to file forms W-2, W-3,
1096, and/ or 1099-Misc. Every association must file Form 1099-Misc. if it pays
rents, commissions, or non-employee compensation of $600 or more to a person or
partnership during the calendar year.
8. Paying late. One way to get the IRS attention is to not pay your taxes. If the
association owes tax when it files, do not include the payment with the tax re-turn.
Instead, mail the payment with Form 8109 to a qualified depository. Other-wise the
IRS may assess a penalty.
9. Forgetting to sign the return. The tax return must be signed and dated by the
president or any other association officer authorized to sign. The paid preparer must
complete the required preparer information and sign the return in the space provided
(stamps and labels are not acceptable).
61

Appendix A
Reading #19: HUD Underwriting Requirements for FHA

Condominium Mortgages
By: Carson M. Horton, RS
Authors Note: Since this article first appeared we have received numerous
inquiries from individuals and businesses seeking clarification of various
details relating to the new HUD underwriting guidelines. As is typical in such
situations a considerable amount of incorrect information has also been
circulated by misinformed sources who do not have their facts correct. As a
public service we have revisited this topic with representatives of the HUD
field office in Santa Ana, CA which has jurisdiction over the Western United
States. Policies which are set by this office regulate mortgage activity of the
agency throughout the western region, which includes the states of Oregon
and Washington. The article which follows is an update of an article which
was written earlier in 2009. The policies which are discussed have been in
effect since the latter half of 2008. Special thanks to Mr. Tom Wilke of the
U.S. Department of Housing and Urban Development, Santa Ana
Homeownership Center in Santa Ana, CA, for his assistance in preparing this
article.
Due to the declining housing market, recent turmoil in the credit markets and
residential mortgage industry, the Department of Housing and Urban
Development - better known to most of you as HUD - has enacted new
lending requirements for certain types of federally insured mortgage loan
programs.
One such rule change with far-reaching implications for condominium
associations and community management companies, is the new
underwriting requirement making it mandatory for all existing condominium
associations to maintain minimum percent funded levels in their reserve
account in order to qualify for FHA insured mortgages. An existing
association is defined by HUD as any condominium association which is not
under the control of the original declarant.
Newly constructed condominium developments are subjected to different
underwriting requirements than those required for existing associations; as
are condominium conversions which are still under the control of the original
declarant. Control of the association is said to exist until such time as the
declarant conducts a turnover meeting which officially relinquishes decisionmaking control of the associations affairs to a board of directors comprised
of homeowners within the community.
Existing Associations: When determining if an existing associations
reserve fund meets the minimum funding requirements, HUD underwriters
require a current reserve study containing a funding projection which clearly
62

Appendix A
Reading #19: HUD Underwriting Requirements, cont.

indicates the percent funded level is 60% or more at the time of approval.
Once a particular association is approved for FHA lending guarantees there is
no requirement that they re-qualify at a future date. However, that does not
mean once you are approved by HUD you can forget about your reserve
funding program. Even after an association has received HUD approval for
FHA loans subsequent loan applications must include an updated reserve
study as part of the document package submitted to underwriters. If the
underwriters see evidence the reserves are not being funded as planned, or
the percent funding amount has fallen to unacceptable levels, it could trigger
the need for a new reserve study.
Not only must the reserve study provide a funding plan which indicates the
reserves are 60% funded at the time approval is granted, but the
associations reserve account must be current in terms of the contributions
which are required to maintain the funding levels indicated in the reserve
study. Reserve contributions which are scheduled in the reserve study must
be made on a monthly basis.
For example if the reserve study indicates the beginning balance in the
reserve fund as of the first day of the current budget cycle was $100,000.00,
and an annual contribution of $60,000.00 is scheduled for the current year;
then the association must be making a monthly contribution of $5,000.00 to
the reserve account. So, in a situation where approval was sought on July 1st
of the current year, the reserve fund balance would need $130,000.00 in
order to gain approval for FHA insured mortgages. ($5,000 x 6 = $30,000 +
$100,000 = $130,000)
Letters from the associations accountant; bank statements showing the
amount of money on deposit at the time of approval; personal assurances
from the Board of Directors, and other equally informal documentation are
not adequate to gain approval of the loan.
The reserve funds must be sequestered in a separate account which is not
commingled with the associations operating fund account, maintenance
account or any other accounts maintained by the association. The reserve
fund account must be earmarked with an account name which clearly
identifies it as the reserve account. The existence of the account and the
account balance will be verified by the HUD underwriters as part of the FHA
approval process.
At the present time HUD does not have any limit as to the maximum level of
assessment delinquencies among the owners within the community.
However, the scheduled reserve contribution which is required by the current
reserve study must be maintained regardless of the level of delinquencies.
63

Appendix A

Using the aforementioned example, if the association is scheduled to make a
$5,000 per month reserve contribution, but is experiencing a 20%
delinquency rate on the payment of monthly assessments from its members,
the $5,000 contribution will still need to be made every month in spite of the
fact that only 80% of the owners are paying their HOA assessments on time.
In many situations, especially among smaller communities, such a situation
is likely to result in the inability of the association to make the scheduled
reserve contribution on a timely basis; effectively making it impossible for
them to qualify for FHA guaranteed mortgage financing if they are
experiencing a significant level of delinquencies.
Declarant Controlled Conversions: Converted condominium properties in
which existing buildings have been converted from some other type of use to
that of a condominium, and which are still under the control of original
declarant, are faced with even more stringent funding requirements than
those which existing associations are subjected to. Declarant controlled
conversions must meet all of the previously described requirements except
that the percent funded level must be 100% rather than 60% at the time
approval is granted.
There is no one year time limit or other time constraint on this requirement.
Meaning that, if a development is over one year old and is still under the
control of the original declarant at the time they seek FHA approval, the
100% requirement will apply. At no time does a declarant controlled
conversion become an existing association until such time as the control of
the association is turned over from the declarant to an owner controlled
board of directors.
Reserve contributions due from the declarant for unsold units which are still
owned by the declarant, cannot be deferred beyond the one month time
horizon required for all reserve contributions. Hence, if the declarant still
owns one hundred units in a 150 unit development, and the per unit reserve
contribution works out to be $50 per month, the declarant must make a
monthly contribution to the reserve account of $5,000 ($50 x 100 units =
$5,000). Many developers will attempt to defer the contributions until each
individual unit sells, or until the time of turnover; this practice is not allowed
under the new HUD guidelines.
New Construction Condominiums: New condominium developments are
treated somewhat differently than existing and converted condominium
associations. New developments are said to be those which are newly
constructed and are being sold by the developer to the first owner who will
ever occupy the dwelling.
64

Appendix A

New developments are not required to maintain a specific percent funded
level in their reserve account. What is required in order to gain approval for
FHA loan guarantees is a current approved operating budget which includes a
provision for a reserve transfer. The transfer must be adequate relative to
the size of the association, its reserve funding obligations, etc.
While this may seem somewhat ambiguous what is important to understand
is that the underwriters are looking at the budget and the reserve funding
obligations of the association to develop a sense of whether there is a
prudent plan for long range replacement funding in place.
Site Condominiums: HUD defines a site condominium as a development
which is organized under a condominium regime, and is platted as a
condominium even though the individual homes within the community are
free-standing, single family residences. More common in some regions than
others, this type of development is becoming more commonplace for a
variety of reasons related to land use and development regulations.
In such situations, if the condominium association is not responsible for
maintaining the exterior of the individual homes within the community, then
the reserve funding requirements previously outlined may not apply.
We say may not apply because at the present time such communities are
treated as traditional condominiums with respect to the HUD underwriting
guidelines. HUD is expected to release new underwriting requirements for
site condominiums within the next few weeks which would allow mortgages
on homes within these communities to be funded under the FHA 203b loan
program, rather than the condominium loan program. By the time this article
goes to press this change may well have taken place.
Site condominiums, in which the association does maintain the exterior of the
homes, are likely to continue being treated as traditional condominiums with
the same underwriting requirements as previously discussed.
When New Becomes Existing: At the point where a new or conversion
condominium is turned over to the control of the unit owners it becomes an
existing condominium under the HUD guidelines. From this point forward
the underwriting requirements for existing associations will apply; although
there is no provision in the HUD underwriting process for re-qualifying any
condominium association after it is initially approved for FHA lending
guarantees.
However, the underwriting process does require lenders to provide an
updated reserve study when a new loan application is submitted, and the
updated study is evaluated, to determine if the associations funding plan is
still consistent with the objectives HUD is trying to achieve with these
65

Appendix A

guidelines. If the current reserve funding plan does not reflect a percent
funded level at, or very near the 60% threshold, HUD will approve the loan in
question, but will then require a new reserve study before any future
applications will be approved.
In California, Oregon, Washington and the handful of other states which
require condominium associations to prepare a reserve study, the issue is
moot; however, the vast majority of states have no such statutory
requirement for reserve studies, which places the burden on each association
to voluntarily conduct a reserve study and fund the reserve account.
Market Impact & A Paradigm Shift: In view of the current mortgage
market instability and recent increase in the number of FHA loan applications
from prospective homebuyers, the new HUD underwriting requirements
suggest a number of important changes may be warranted by many
condominium associations and their management companies.
Any association which can expect prospective buyers to require FHA
guaranteed mortgage loans in order to purchase condominiums within the
community, should consider the following implications which are a direct
result of the HUD funding requirements:
A formal reserve study is required to gain loan approval, irrespective

of whether the association is under any statutory requirement to
perform a reserve study; assuming the association has never been
approved by HUD for FHA insured mortgages.
A minimum percent funded level of 60% is required for the year in

which theassociation is initially approved for FHA condominium
mortgages. Even though the 60% funded level is well below the ideal
of 100%, it is typically higher than the levels maintained by many
associations. This situation could easily result in many under-funded
associations having to seed the current reserves with money raised
through a special assessment, or be unable to secure FHA guaranteed
mortgages on the condominiums within their community.
Although HUD does not require an association to re-qualify after the

initial approval, ongoing FHA lending activity can be expected to
require the reserves to remain funded at, or very near the 60%
threshold from year to year. Therefore, responsible governance
suggests that all associations should anticipate it being necessary to
maintain a 60% percent funded level at all times.
Given the relatively high funding threshold, associations should seek to

obtain the most thorough, comprehensive and accurate study possible.
Hastily prepared, low cost reserve studies generally lead to poor
66

Appendix A

results; if only because the preparer isnt paid enough to spend the
amount of time warranted performing a thorough, accurate analysis.
In such a situation the association could easily end up paying more
than is necessary to maintain adequately funded reserves.
Associations should be equally leery of reserve study providers who

offer to magically transform the percent funded levels by extending
the remaining life estimates or under-estimating the replacement cost
of major reserve components. Percent funded levels are a comparison
of cash reserves with the accumulated
depreciation of association assets which are the subject of the reserve
study. Through manipulation of these numbers it is possible to paint
just about any picture one chooses, whether it represents a credible
funding projection or not. Remember, statistics can be interpreted in
different ways to support just about any point of view the statistician
desires.
Failure to plan ahead by obtaining a competent reserve study and
addressing the adequacy of the associations reserves could be viewed
as a breach of the fiduciary duty of the Board of Directors. Professional
managers are also well advised to encourage their association clients
not to ignore the importance of this subject. All it will take is one or
two failed sales as a result of condominiums within the association not
being eligible for FHA financing, before managers and board members
alike are certain to hear from disgruntled owners.
In addition to the HUD underwriting guidelines which apply to FHA insured

mortgages, conventional mortgage underwriting guidelines are also
beginning to reflect a heightened level of concern for adequate reserves and
responsible financial planning on the part of homeowners associations in
general and specifically in the case of condominium associations.
The time is fast approaching when it will no longer be an option to simply
ignore the need for responsible long range financial planning which includes
an adequate level of reserve contributions. To meet the ongoing major repair
and restoration costs which all associations face sooner or later, reserves are
a necessity, not a luxury.
Even though the need for reserves has traditionally been treated as a
discretionary form of savings - a fact which is reflected in the condominium
statutes in the vast majority of states to this day we have reached a
tipping point in the evolution of common interest developments beyond
which the future will be very bleak for those communities who continue to
ignore the importance of reserves and long range planning.
67

Appendix A

T.A.N.S.T.A.A.F.L: The era of the free lunch is over. With property values
declining in many areas and with real estate unlikely to appreciate in the
future at anywhere near the rates Americans have grown accustomed to,
many homeowners will be hard pressed to afford huge lump sum special
assessments when an association finds itself with a major shortfall in its
reserve fund.
Communities in which the buildings are twenty years of age or older are
particularly vulnerable as the dreaded thirty year time horizon begins to close
in on them. Thirty years is generally considered to be the point when most
major building systems and components will have substantially reached the
end of their useful life.
Associations which are not prepared to make major financial expenditures at
or beyond thirty years of age may never be able to raise the money they
need to pay for repair and restoration of major community assets, if they
have failed to develop a long range reserve funding plan.
With disclosure laws being changed in many states to now require sellers of
real estate to disclose details about the financial status of their association to
prospective buyers; it will become increasingly difficult to simply walk away
from a financially deficientassociation by selling your home and moving on.
Like the old saying goes, there aint no such thing as a free lunchthere
never was and there never will be.
68

Appendix A
Reading #20: National Reserve Study Standards of Community

Associations Institute
RESERVE STUDY
A reserve study is made up of two parts, 1) the information about the
physical status and repair/replacement cost of the major common area
components the association is obligated to maintain (physical analysis), and
2) the evaluation and analysis of the associations reserve balance, income,
and expenses (financial analysis). The physical analysis comprises the
component inventory, condition assessment, and life and valuation
estimates. The component inventory should be relatively stable from year
to year, while the condition assessment and life and valuation estimates will
necessarily change from year to year. The financial analysis is made up of a
finding of the clients current reserve fund status (measured in cash or as
percent funded) and a recommendation for an appropriate reserve
contribution rate (funding plan).
Physical analysis
Component inventory
Condition assessment
Life and valuation estimates
Financial analysis
Fund status
Funding plan
LEVELS OF SERVICE
The following three categories describe the various types of reserve studies,
from exhaustive to minimal.
I. Full: A reserve study in which the following five reserve study tasks are
performed:
Component inventory
Condition assessment (based upon on-site visual observations)
Fund status
Funding plan
II. Update, with-site-visit/on-site review: A reserve study update in
which the following five reserve study tasks are performed:
Component inventory (verification only, not quantification)
Condition assessment (based upon on-site visual observations)
Fund status
Funding plan
69

Appendix A
National Reserve Study Standards of CAI (cont.)

III. Update, no-site-visit/off-site review: A reserve study update with
no on-site visual observations in which the following three reserve study
tasks are performed:
Fund status
Funding plan
TERMS AND DEFINITIONS

CAIs Reserve Professionals Committee adopted the following terms and
definitions to assist community association boards of directors.
Cash flow methodA method of developing a reserve funding plan in which
contributions to the reserve fund offset the variable annual expenditures
from it. Different reserve funding plans are tested against the anticipated
schedule of reserve expenses until the desired funding goal is achieved.
ComponentAn individual line item in a reserve study, developed or
updated in the physical analysis. Components are the building blocks on
which the reserve study is built.
Component inventoryThe task of selecting and quantifying reserve
components. This task can be accomplished through on-site visual
observations, review of association design and organizational documents,
review of established association precedents, and discussion with the
appropriate association representative(s).
Component methodA method of developing a reserve funding plan in
which the total contribution is based on the sum of contributions for
individual components. See cash flow method.
Condition assessmentThe task of evaluating the current condition of the
component based on observed or reported characteristics.
Current replacement costSee replacement cost.
DeficitAn actual (or projected) reserve balance less than the fully funded
balance. The opposite would be a surplus.
Effective ageThe difference between useful life and remaining useful life.
Not always equivalent to chronological age because some components age
irregularly. Used primarily in computations.
70

Appendix A

Financial analysisThe portion of a reserve study in which the current
status of reserves (measured as cash or percent funded) and a
recommended reserve contribution rate (reserve funding plan) are derived,
and the projected reserve income and expense over time is presented. The
financial analysis is one of the two parts of a reserve study.
Fully funded100 percent funded; when the actual (or projected) reserve
balance is equal to the fully funded balance.
Fully funded balance (FFB)Total accrued depreciation; an indicator
against which actual (or projected) reserve balance can be compared; the
reserve balance that is in direct proportion to the fraction of used life of the
current repair or replacement cost. This number is calculated for each
component, and these sums are added together for an association total.
Funding goalsIndependent of methodology utilized, the following
represent the basic categories of funding plan goals:
Full funding: Setting a reserve funding goal of attaining and

maintaining reserves at or near 100 percent funded.
Baseline funding: Establishing a reserve funding goal of keeping the

reserve cash balance above zero.
Statutory funding: Establishing a reserve funding goal of setting

aside the specific minimum amount of reserves required by local
statutes.
Threshold funding: Establishing a reserve funding goal of keeping

the reserve balance above a specified dollar or percent funded
amount. Depending on the threshold, this may be more or less
conservative than full funding.
Funding planAn associations plan to provide income to a reserve fund to

offset anticipated expenditures from that fund.
Life and valuation estimatesThe task of estimating useful life, remaining
useful life, and repair or replacement costs for reserve components.
Percent fundedThe ratio at a particular point in time (typically the
beginning of the fiscal year) of the actual (or projected) reserve balance to
the fully funded balance, expressed as a percentage.
71

Appendix A

Physical analysisThe portion of the reserve study in which the component
inventory, condition assessment, and life and valuation estimate tasks are
performed. This represents one of the two parts of the reserve study.
Remaining useful life (RUL); Remaining life (RL)The estimated time, in
years, for which a reserve component can be expected to continue to serve
its intended function. Components of projects planned for the initial year
have zero remaining useful life.
Replacement costThe cost of replacing, repairing, or restoring a reserve
component to its original functional condition. The current replacement cost
would be the cost to replace, repair, or restore the component during that
particular year.
Reserve balanceActual (or projected) funds at a given point in time
identified by the association to defray the future repair or replacement costs
of those major components the association is obligated to maintain. Also
known as reserves, reserve accounts, or cash reserves.
Reserve studyA budget planning tool that identifies the current status of
the reserve fund and a stable and equitable funding plan to offset the
anticipated future major common-area expenditures. The reserve study
consists of two parts: the physical analysis and the financial analysis.
Special assessmentAn assessment levied on association members in
addition to regular assessments. Special assessments are often regulated by
governing documents or local statutes.
SurplusAn actual (or projected) reserve balance greater than the fullyfunded balance. See deficit.
Useful life (UL)The estimated time, in years, for which a reserve
component can be expected to serve its intended function if properly
constructed in its present application or installation.
PROFESSIONAL DESIGNATION
The following is an outline of the designation application. The RS designation
is intended for individuals, and is designed to demonstrate a basic level of
competency within the industry. The application comprises four parts:
background, experience and sample work product, references, and
continuing experience. All four parts must be completed and submitted to
apply for the credential via the Reserve Specialist (RS) Application.
72

Appendix A

Qualification guidelines:
1. Background:
College bachelor level degree in construction management,
architecture, or engineering; or four years prior related experience
(prior to and in addition to direct reserve study experience) in a field
servicing community associations (accounting, association
management, construction, etc.); or trade school diploma and two
years prior related experience (prior to and in addition to direct
reserve study experience).
2. Experience and sample work product:
Must certify preparation of or be in responsible charge for preparing
at least 50 reserve studies within past three calendar years and
submit a list of 50 clients with application. Must submit one study of
the applicants original work using format on application including all
seven tasks as described within for a full study. One sample work
product must be submitted to demonstrate that minimum report
requirements and disclosures have been met.
3. References:
Two references from community association industry professionals.
Five references from different clients.
4. Continuing experience:
Must continue to prepare or be in responsible charge for the
preparation of at least 50 reserve studies within past three calendar
years and submit a list of 50 clients with application. Renewal
applications required every third year, will require documentation of
this experience. (See Experience and Sample Work Product.)
73

Appendix A

RESERVE STUDY CONTENTS
The following is a list of the minimum contents to be included in the reserve
study:
A summary of the associations number of units, physical description,

and reserve fund financial condition.
A projection of reserve starting balance, recommended reserve

contributions, projected reserve expenses, and projected ending
reserve fund balance for a minimum of 20 years.
A tabular listing of the component inventory, component quantity or

identifying descriptions, useful life, remaining useful life, and current
replacement cost.
A description of methods and objectives utilized in computing the fund

status and development of the funding plan.
Source(s) utilized to obtain component repair or replacement cost

estimates.
A description of the level of service by which the reserve study was

prepared.
Fiscal year for which the reserve study is prepared.
74

Appendix A

DISCLOSURES
The following are the minimum disclosures to be included in the reserve
study.
General: Description of other involvement(s) with the association that could
result in actual or perceived conflicts of interest.
Physical analysis: Description of how thoroughly the on-site observations
were performed: representative sampling vs. all common areas, destructive
testing or not, field measurements vs. drawing take-offs, etc.
Financial analysis: Description of assumptions utilized for interest and
inflation, tax, and other outside factors.
Personnel credentials: State or organizational licenses or credentials
carried by the individual responsible for reserve study preparation or
oversight.
Update reports: Disclosure of how the current work is reliant on the validity
of prior reserve studies.
Completeness: Material issues which, if not disclosed, would cause a
distortion of the associations situation.
Reliance on client data: Information provided by the official representative
of the association regarding financial, physical, quantity, or historical issues
will be deemed reliable by the consultant. The reserve study will be a
reflection of information provided to the consultant and assembled for the
associations use, not for the purpose of performing an audit, quality/forensic
analyses, or background checks of historical records.
Reserve balance: The actual or projected total presented in the reserve
study is based upon information provided and was not audited.
Component quantities: For update with-site-visit and update no-site-visit
levels of service, the client is considered to have deemed previously
developed component quantities as accurate and reliable.
Reserve projects: Information provided about reserve projects will be
considered reliable. Any on-site inspection should not be considered a project
audit or quality inspection.
75

Appendix A
Community Associations Institute Professional Reserve

Specialist (RS) Code of Ethics
The Reserve Specialist Shall:
1. Comply with current standards or practices as may be established
from time to time by CAI and the Reserve Specialist (RS) Designation
Review Board;
2. Not make any inaccurate or misleading representations or statements
to a prospective client;
3. Undertake only those engagements the reserve specialist can
reasonably expect to perform with professional competence;
4. Exercise due care and exhibit adequate planning and supervision;
5. Disclose in writing to the client any actual, potential or perceived
conflict of interest if the client may have dealings with another party in
some way related to the reserve specialist;
6. Not knowingly misrepresent facts to benefit the reserve specialist;
7. Conduct himself or herself in accordance with the reserve specialist
requirements;
8. Not hold himself or herself out to anyone as being a reserve specialist
designee until such time as he or she receives written confirmation
from the Reserve Specialist Designation Review Board or CAI of receipt
of the designation; and
9. Abide by the redesignation policy of CAI.
76

Appendix A
The CAI Bookstore

The following publications are excellent resources for new community
association managers and for those managers interested in obtaining
additional financial information about community associations. For further
information on any of these publications, call CAI for a bookstore catalog at
888-224-4321 or visit the online bookstore at www.caionline.org.
2007 Community Association Manager Compensation & Salary Survey. Jake
Gold & David Jennings, 2007. More than 1,000 participants contributed to
the 2007 Community Association Manager Compensation and Salary Survey, making it
the most comprehensive survey to date with three times more data than
the 2003 survey. It's the definitive resource for community associations
and management companies to plan realistic budgets, negotiate salaries,
evaluate benefits, and remain competitive.
A Complete Guide to Reserve Funding & Reserve Investment Strategies
(Guide for Association Practitioners Series, Report #24), Fifth Edition,
Mitchell H. Frumkin, P.E., P.P., RS, MBA and Christopher J. Juall, Editors.
How to set up and implement reserve funds. Chapters cover investing
reserve funds, investment policies and options, and lists the pros and
cons of each. Contains a summary of state reserve fund requirements, the
complete reserve standards, and the reserve specialist code of ethics.
(Community Associations Press, 2001.)
Accounting For Managers, William H. Webster, 2004. As a professional in a
management position, accounting will play a hand in virtually every
decision you make. Accounting For Managers explains the critical accounting
concepts you need to understand in this vital area, and then
demonstrates their implementation and application in everyday business.
The newest addition to Community Associations Press gives you the
insights you need to track how money flows through and fuels your
organization
Assessment CollectionLegal Remedies (Guide for Association Practitioners
Series, Report #5), Third Edition, by Thomas J. Hindman, esq. and Loura
Sanchez, esq. This report describes formalized collection procedures,
including sample letters and legal remedies such as liens, small claims
court, and notice to lenders. (Community Associations Press, 2000.)
Best Practices Report #1: Reserve Studies/Management, 2001. Community
associations come in all sizes. They vary in age, amenities provided, and
maintenance obligations. Careful planning for future repairs and
replacements is not only in the best physical and fiscal interests of the
community association, it is required by law in some states. Maintaining a
reserve fund not only meets legal, fiduciary and professional
requirements, it also minimizes the need for special assessments and
77

Appendix A
enhances resale values. This Best Practices Report, published by the
Foundation for Community Association Research, includes performance
benchmarks on how to sufficiently reserve for the future as well as case
studies that illustrate the implementation of those benchmarks in real
communities.
Best Practices Report #4: Financial Operations, 2001. Given that the fiscal
health of the association has a direct impact on every member of the
community, proper management of financial operations is an important
element of building better communities. This Best Practices Report, published
by the Foundation for Community Association Research, includes
performance benchmarks for how to establish financially healthy
communities as well as case studies that illustrate the implementation of
those benchmarks in real communities.
The Board Treasurer: Roles and Responsibilities in Community Associations,
Howard A. Goldklang, 2006. The definitive guide for this pivotal position
helpful to all treasurers and all board members as well. Outlines in detail
the duties of the treasurer and offers advice on most types of letters,
reports, and tax documents treasurers are required to produce. Also
contains suggestions for working with the board and residents, including
tips on dealing with delinquencies and record retention.
Collecting AssessmentsAn Operational Guide (Guide for Association
Practitioners Series, Report #10), Fourth Edition. This report explains how
to set up a collection system and make it work. It includes sample
documents, forms, and other communications. (Community Associations
Institute, 1996.)
Common Interest Realty Association Audit and Accounting Guide, American
Institute of Certified Public Accountants, 2007-2008. Provides the AICPA
recommendations on the application of generally accepted auditing
standards plus audits of financial statements of community associations.
Also describes and recommends reporting principles and practices. This
guide is updated each year in May, and the latest edition is always
provided to buyers.
Communications: How Community Associations Keep in Touch. Debra H.
Lewin, Community Associations Press, 2008. Completely revised,
updated, and expanded, the latest edition of this classic report contains
all-new sections on personal communications, public relations,
communicating with policy makers, and communications technology. In
addition, chapters on newsletters, meetings, annual reports, directories,
and surveys have all been updated and expanded. Give your association a
leg up in this all-important area! Build a positive and powerful relationship
with your homeowners through the hints and how-to's contained in this
report.
78

Appendix A
Community Association Finances: Common Sense from Common Ground: A
Collection of Articles from CAI's Award-Winning Magazine, 2005. Does
your association know what questions to ask before raising assessments,
or how to collect them with electronic funds transfer? If you were short on
funds, would you know how to finance a capital improvement project?
Can the association treasurer make sense of the financial statement?
Does the association need fidelity bonding, and should it apply for taxexempt status? The answers to these and dozens more questions are
answered in Community Association Finances, a collection of 31 articles from
CAI's award-winning Common Ground magazine covering assessments,
cutting costs, generating revenue, budgeting, protecting assets, reserves,
investing, and taxes.
Delinquencies: How Community Associations Collect Assessments, Loura K.
Sanchez, Esq., & Thomas J. Hindman, Esq., 2008. What authority does a
community association have for collecting assessments? What should
collections policies cover and what procedures should an association
follow to collect delinquencies? What practical and legal remedies are
available to associations to collect delinquencies? Find out how to
document your case in court and how to meet the most common defenses
delinquent owners use. This guide will help you minimize loss to the
association when owners file bankruptcy and explain how the Fair Debt
Collection Practices Act can effect the association when they file. Includes
a sample collections policy resolution and two sample collection letters.
Increase Income, Not Assessments: 35 Ways to Make Money for Your
Community Association, by Nancy K. Bianconi. Provides instruction for
fundraising and conducting profitable events. Includes sample checklists
and legal and insurance considerations. (Community Associations
Institute, 1994.)
The Ledger Quarterly. A quarterly online newsletter that reports on audit and
accounting guidelines and practices, association taxes, and recent court
cases and IRS rulings. Community Association Institute.)
Member Dues: How Community Associations Collect Assessments contains
practical new information on how you can set up a payment system that
works! Contains helpful suggestions for remittance systems including the
use of payment coupon books. Also includes a section on procedures and
hints for collecting delinquent payments. Association declaration and state
law gives associations the authority to collect assessments.
Policies & Procedures to Prevent Fraud & Embezzlement: Guidance, Internal
Controls, and Investigation, Edward J. McMillan, CPA, CAE, 2006. Is your
association or Management Company vulnerable to fraud? It's no secret
that corporate fraud is a real threat to business today. Fraud losses are
devastatingbut they are also avoidable. Find out how to safeguard your
79

Appendix A
associations' assets or your company's reputation from plots, schemes,
and identity theft.
Property Taxes and Homeowner Associations, (Guide for Association
Practitioners Series, Report #6), Fourth Edition, by George R. Grasser. If
your association holds title to common areas and facilities, theres a
possibility they may be taxed twice. You may be surprised to learn that
small mistakes in the original subdivision process can go unnoticed for
years! Learn what you and your tax accountant can do about it.
(Community Associations Press, 2002.)
Reserve Funds: How & Why Community Associations Invest Assets, Mitchell
H. Frumkin, PE, PP, RS, MBA and Nico F. March, CFM, 2005. The USA
Patriot Act has changed the financial industry and had an impact on
community associations' investments. This updated GAP explains what
associations need to know to comply with new regulations. The revised
text also addresses changes made by the AICPA that affect association's
auditing and reporting procedures. A new appendix contains dozens of
frequently asked questions. Also contains a summary of reserve fund laws
state-by-state.
Risk Management: How Community Associations Protect Themselves, Clifford
J. Treese, CPCU, ARM, CIRMS, 2006. Manage risk by using a five-step
decision-making process and implement a risk-management program by
engaging in four key activities. Find out when and to whom it's
appropriate to delegate risk-management tasks. Learn why insurance
alone isn't enough to control risk. Addresses the growing risks for
community associations in the Internet age, and how to integrate
reserves and risk management programs. (Formerly published as Evaluating
and Managing Risk in Condominiums, Co-ops, and Planned Communities, GAP #25.)
Tips for Protecting Your Association Finances. A handy brochure for board
members and key employees regarding finances. Offers tips on important
aspects of association finances: audits, financial statements, signatory
control, investment policies and more. (Community Associations Press,
2002.)
80

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2009 Community Associations Institute

M-206: Financial Management

2009 Community Associations Institute

M-206: Financial Management

Appendix A: Additional Readings

M-206: Financial Management

M-206: Financial Management

Reading #1: A Loan At Last

M-206: Financial Management

Reading #1: A Loan At Last (cont.)

M-206: Financial Management

Reading #1: A Loan At Last (cont.)

M-206: Financial Management

Reading #1: A Loan At Last (cont.)

M-206: Financial Management

Reading #1: A Loan At Last (cont.)

M-206: Financial Management

Reading #2: The Bottom Line

M-206: Financial Management

Reading #2: The Bottom Line (cont.)

M-206: Financial Management

Reading #2: The Bottom Line (cont.)

M-206: Financial Management

Reading #2: The Bottom Line (cont.)

M-206: Financial Management

Reading #2: The Bottom Line (cont.)

Access to account information.

M-206: Financial Management

Reading #2: The Bottom Line (cont.)

The Great Beyond

M-206: Financial Management

Reading #3: $64,000 Questions

M-206: Financial Management

Reading #3: $64,000 Questions (cont.)

M-206: Financial Management

Reading #3: $64,000 Questions (cont.)

M-206: Financial Management

Reading #4: Self-policing

M-206: Financial Management

Reading #4: Self-policing (cont.)

M-206: Financial Management

Reading #4: Self-policing (cont.)

M-206: Financial Management

Reading #4: Self-policing (cont.)

M-206: Financial Management

Reading #5: Healthy Wealthy and Wise

M-206: Financial Management

Reading #5: Healthy Wealthy and Wise (cont.)

M-206: Financial Management

Reading #5: Healthy Wealthy and Wise (cont.)

M-206: Financial Management

Reading #5: Healthy Wealthy and Wise (cont.)

M-206: Financial Management

Reading #6: Cashing In

M-206: Financial Management

Reading #6: Cashing In (cont.)

M-206: Financial Management

Reading #7: To Collect and Serve

M-206: Financial Management

Reading #7: To Collect and Serve (cont.)

M-206: Financial Management

Reading #7: To Collect and Serve (cont.)

M-206: Financial Management