Required Financial Documents Fact Sheet

Bidders in the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program must upload the required financial documents specified in the Request for Bids (RFB) Instructions in Connexion, the program’s secure portal, by the close of the bid window.

1. Tax Return Extract

You must upload in Connexion the tax return extract for the most recent year (either calendar or fiscal) in which a tax return has been filed with the Internal Revenue Service (IRS). Generally, the tax return extract must be either a 2017 or 2018 tax return extract. However, a 2016 tax return extract may be acceptable for fiscal year filers depending on the business type, form being submitted, and their tax year end date (see the Financial Documents By Business Type Table for more information concerning the acceptable IRS forms and dates). Only send the required pages depending on your business type.

Parent/Subsidiary – If your organization is a subsidiary of a parent organization and you, as a subsidiary, file your own tax return, you must upload your own tax return extract and your own financial documents. However, if the subsidiary is included on the parent organization’s tax return, you must upload the parent organization’s tax return extract and the parent’s financial documents. Please also upload the parent’s IRS Form 851. A combination of financial documents from both the parent and subsidiary companies is not acceptable.

Municipality/State Owned Entities – If your organization is a municipality or state owned entity that does not submit tax returns, you are not required to upload a tax return extract. However, you must obtain and upload an IRS governmental information letter documenting this status. You are still required to upload the required financial statements and credit report with a numerical credit score or rating (see the Credit Report with Numerical Credit Score or Rating section below for additional information).

2. Financial Statements (You must upload all three financial statements. All statements should have detailed account information and subtotaled sections.)
  
Income Statement

• Legal business name
• Reporting period
• Revenues
• Cost of goods sold, if applicable
• Depreciation, if applicable
• Amortization, if applicable
• Expenses by category such as salary, utilities, rent, etc.
• Net income (loss)

 Balance Sheet

• Legal business name
• Reporting period
• Current assets, if applicable
• Total assets
• Current liabilities, if applicable
• Total liabilities, if applicable
• Equity

Statement of Cash Flows

• Legal business name
• Reporting period
• Net income (loss), only if using indirect method
• Cash flows resulting from operating activities
• Cash flows resulting from financing activities, if applicable
• Cash flows resulting from investing activities, if applicable
• Increase (decrease) in cash
• Beginning cash balance
• Ending cash balance

Note: Please see the Sample Financial Statements for further clarification.

Financial Statement Requirements

• All financial statements must be for the same 12-month accounting period and match the reporting period of the tax return. For example, if the tax return was filed for calendar year 2018, the financial statements must also be for calendar year 2018. If the tax return was for fiscal year ending June 30, 2018, the financial statements must also be for fiscal year ending June 30, 2018.
   
• If your tax return filed was for less than 12 months, the financial statements that correspond to the same partial year tax return are required. Financial statements (actual or pro forma) for months subsequent to the tax return must be uploaded to cover the exact 12-month requirement. For example:
   
  • A bidder that started its business on July 1, 2017, and submits its tax return on a calendar year basis must upload an initial tax return for the six month period from July 1, 2017, through December 31, 2017, along with corresponding financial statements for the same period. To cover the exact 12-month requirement, the bidder must also upload the actual financial statements for the period from January 1, 2018, through June 30, 2018.
     
  • A bidder that started its business on January 1, 2019, and submits a tax return on a calendar year basis will not yet have been required to submit a tax return prior to the opening of the bid window in June 2019. In this instance, to satisfy the exact twelve-month requirement, the bidder (i.e., new supplier) may upload actual financial statements for the five months ending May 31, 2019, and pro forma financial statements for the seven month period from June 1, 2019, through December 31, 2019.
    
    For any situation in which a tax return covers less than 12 months, financial statements matching the partial year tax return period plus separate actual or pro forma financial statements for the subsequent months (to meet the 12-month requirement) must be uploaded. Do not upload month to month statements.
     
• The financial statements must be prepared on the accrual, cash, or tax basis of accounting.
   
• Each financial statement should correspond with related financial statements. For example, ending cash on the statement of cash flows should equal to cash reported on the balance sheet.
   
• Each financial statement’s information should accurately total. For example, in the balance sheet total assets should equal the sum of total liabilities and equity.
   
• Financial statements should be prepared in accordance with generally accepted accounting principles (GAAP) to the extent possible. While not GAAP, cash and tax basis financial statements are acceptable.
   
• Forms you submit to federal agencies for other purposes, such as Small Business Administration forms, are not acceptable substitutes for financial statements.

For Parent/Subsidiary Situations

Financial statements should be at the same organization level as the tax return extract. For example, a subsidiary that files its own tax returns must upload its own financial statements (i.e., they must be at the subsidiary level) to correspond with its tax return extract. However, if a parent organization files the tax return on its subsidiary’s behalf, the financial statements and tax return extract provided by the subsidiary must be at the parent organization level. Business division or line of business financial statements that do not correspond to the tax return extract will not be accepted. If the parent organization files the tax return on their subsidiary's behalf, then Form 851 should also be uploaded. 

We recommend that the financial statements be compiled, reviewed, or audited by an accounting professional and that you provide the accounting professional a copy of the Request for Bids (RFB) Instructions along with the Required Financial Documents by Business Type Table to help ensure that you meet all documentation requirements. However, it is the bidder’s responsibility to upload required financial documents that are in compliance with the RFB Instructions, regardless of whether it engages the services of an accounting professional.
 

• You must upload all documents as identified for your business type in the Required Financial Documents by Business Type Table.
   
• You may upload additional information (e.g., organizational charts) that explains your organization’s business structure or provides additional details about the information reflected in your required financial documents. Do NOT include other documents such as bank references, personal financial statements of corporate stockholders, advertising materials, or bank statements.

Basic Requirements to Verify When Preparing Your Financial Documents
 

• Income Statement
  • Include the legal business name.
  • Ensure the reporting period matches the tax return extract.
  • Report revenues net of adjustments.
  • Include cost of goods sold, if applicable.
  • Report depreciation separately from amortization, if applicable.
  • Show expenses by category such as salary, utilities, rent, etc.
  • Clearly state net income (loss).
     
• Balance Sheet
  • Subtotal each subsection of the balance sheet.
  • Include detailed account balances for each subsection.
  • State accounts receivable as gross with the allowance for doubtful accounts stated separately.
  • Include current portion of long term debt in the current liability subsection.
  • Include overdrafts of cash accounts in the current liability subsection.
  • Ensure the balance sheet balances. Total assets should equal the sum of total liabilities and equity. Please be consistent if rounding numbers.
     
• Statement of Cash Flows
  • Use either the direct or indirect method of preparing the statement of cash flows; either is acceptable.
  • If using the indirect method, the net income is reported under the operating activities and is then followed by the adjustments needed to convert the net income to the cash flows from operating activities. Note that the net income on the statement of cash flows should equal the net income reported on the income statement. Additionally, all depreciation expenses should be included under the operating activities.
  • If using the direct method, the cash amounts received and paid by the company are listed in the operating activities section.
  • Investing section should include:
    • all cash paid for equipment acquisitions
    • all cash loaned to or collected from others
  • Financing section should include:
    • all cash for loans acquired and payments
    • any distributions to shareholders, owners, partners, or members
  • Subtotal the operating, investing and financing sections.
  • Clearly state the sum of the three sections as increase (decrease) in cash during the period.
  • Clearly state the beginning of the period cash amount.
  • Ensure the sum of the increase (decrease) in cash and the beginning cash equal the cash balance at the end of the period.
  • Ensure the ending cash balance reported on the statement of cash flows equals cash reported on the balance sheet.
  • Include a cash reconciliation that reflects beginning and ending cash balances as well as the net increase or decrease (net change) between the two. The net change must equal the change in cash reported on the statement of cash flows.

Caution!

Many off-the-shelf accounting programs default settings do not generate properly formatted financial statements. We strongly recommend the use of an accounting professional to prepare your required financial documents.

3.  Credit Report with Numerical Credit Score or Rating

You must upload a copy of your business' credit report showing a numerical credit score or rating, your company's name, and the date that the credit report was prepared - no earlier than 90 calendar days prior to the opening of the bid window. If the numerical credit score or rating is generated separately from your credit report, your company's name and the date it was prepared must be shown on the credit report and included with the numerical credit score or rating.

Your business credit report must be from one of the four approved credit reporting agencies and include one of the acceptable numerical credit scores or ratings listed in the table below.

• Credit reports from other credit reporting agencies, not listed above, will not be considered.
• Your credit report must include a numerical credit score or rating from one of the acceptable scores or ratings listed in the table above. Any other forms of gauging credit (such as arrows indicating relative value of credit or the number of days beyond term) are not acceptable. The only exception is an alpha score from Standard & Poor’s. All of the other acceptable credit scores or ratings yield a numerical score.
• A credit summary or business report does not qualify as an acceptable credit report.

If your business' credit report is not available, a personal credit report for the primary business owner is acceptable. If you upload a personal credit report, the business owner's name and the date the report was generated – no earlier than 90 calendar days prior to the opening of the bid window – must appear on the same page as the numerical credit score or rating. However, a personal credit report with a numerical credit score or rating is not acceptable from bidders filing a regular 'C' corporation tax return (Form 1120), except in cases of newly formed corporations.

A personal credit report must be from one of the three approved credit reporting agencies and include one of the acceptable numerical scores or ratings listed in the table below.

How to Prepare your Required Documents for Uploading in Connexion

• Complete the business organization section in Form A of DBidS to obtain your bidder number. You must provide your bidder number in Connexion before you can upload your required documents in Connexion.
   
• Upload ONE set of documents per bidder number, regardless of the number of Form B’s you complete. Commonly owned and/or commonly controlled suppliers have additional requirements for financial documents. Please refer to the Special Instructions for Specific Bidder Types information below. Upload ONLY the required documents. Do NOT upload other documents such as bank references, personal financial statements of corporate stockholders, advertising materials, or bank statements. Only required documents will be evaluated; supplemental documents will be disregarded. The only exception to this requirement is that you may also upload additional information in the form of organizational charts or other supplemental information that explains your organization’s business structure or provides additional details about information reflected in your required financial documents.
   
• To assist you in complying with all requirements, please refer to the Required Financial Documents by Business Type Table and the Required Documents Checklist when preparing your documents.
   
• All required documents must be uploaded in Connexion by the close of the bid window. Mailed, faxed, emailed, or hand-delivered documents will NOT be considered.
   
• Required documents that are not uploaded in Connexion by the close of the bid window will not be considered under any circumstances.
   
• Only the covered documents¹ identified and requested in a written notification from the CBIC as a result of the covered document review date (CDRD) process will be considered after the close of the bid window (see the Process for Reviewing Covered Documents fact sheet).

Special Instructions for Specific Bidder Types

Commonly Owned or Commonly Controlled Suppliers
For commonly owned or commonly controlled suppliers, each organization’s financial and non-financial documents must be uploaded in Connexion. For example, if you are bidding with five other suppliers and you are all commonly owned, you must upload six complete sets of required financial and non-financial, if applicable, documents (one set for each of the suppliers included on the bid). As mentioned above, you may upload additional information (e.g., organizational charts) that explains your organization’s business structure or provides additional details about information reflected in your required financial documents.

New Suppliers and Partial Year Tax Return Filers
If you are a new supplier that has been in business for less than one year from the date on which you submit your bid, you must upload appropriate actual and pro forma data on your financial statements, representing the months to which they apply, to equal a 12-month period.

For example, if you are a new supplier that began business on March 1, 2019, and submit a bid on August 10, 2019, you would have to upload your actual financial statements covering the period from March 1, 2019, through July 31, 2019, (assuming this is the latest month closed) and a set of pro forma - or prospective - financial statements covering the period from August 1, 2019, through February 29, 2020, to cover the entire 12-month period. Actual and pro forma financial statements must not be aggregated or combined for the same period. This means you cannot put pro forma information on actual statements and you cannot put actual information on pro forma statements. Therefore, the set of actual and pro forma financial statements must be reported separately, and collectively they must cover an exact 12-month period. Each statement must cover the appropriate portion of the 12-month period and include no additional months.

If a business has a change in its structure resulting in the submission of a short year tax return to the IRS, it is required to upload two sets of financials: 1) one set must reflect the same reporting period as the tax return, and 2) the other set must reflect the reporting period following the tax return end date, which results in the required 12 months of activity. 

For example, if a bidder elects to change its reporting period from December 31st to June 30th and files a short year tax return ending on June 30, 2018, the first set of financials will be for the period of January 1, 2018, to June 30, 2018. The second set will be for the period of July 1, 2018, to December 31, 2018. This will result in the successful submission of the required 12 months of financial information needed to perform the evaluation.

Change in IRS Tax Entity Type
If a bidder elects to change its IRS tax entity type but not its reporting year, it must upload both tax return extracts and one entire 12-month set of financial documents. For example, a bidder files taxes on a calendar year basis and changes from an 1120-S to an 1120 on May 31, 2018. Because a new owner of the business is a corporation and the S-status is no longer valid, the bidder would upload the final Form 1120-S return (January 1, 2018 – May 31, 2018) and the short period Form 1120 return (June 1, 2018 – December 31, 2018). The bidder would also upload the normal calendar year 2018 set of financial documents to meet the 12-month reporting period requirement.

Note: New suppliers are encouraged to contact the CBIC with any questions and/or concerns regarding their individual situation.
 

Networks
For networks, the primary member must obtain and upload financial and non-financial documents from EACH network member in Connexion. If you have two bidder numbers because you are submitting an individual bid for a different competitive bidding area and product category combination and also bidding as the primary member of a network, you must upload separate documents for each bidder number – one set of documents to support your individual bid(s) and one to support your network’s bid(s). Each network member must sign a certification statement, and the primary member must also upload it in Connexion.

Suppliers Exempt from Filing Federal Tax Returns
If your organization is a municipality or state-owned entity that is exempt from filing federal tax returns, you are not required to upload a tax return extract. However, you must obtain and upload an IRS governmental information letter documenting this status instead of the required tax extract forms. You are still required to upload the required financial statements and credit report with a numerical credit score or rating (credit report must contain a numerical credit score or rating, your company’s name, and the date the credit report was prepared).

If your organization is recognized as a religious organization as described in Section 3 of IRS REV. Proc. 96-10 and is excused from IRS filing, you must upload a letter stating you meet this exception and are exempt from IRS filing in lieu of the required tax extract forms. You are still required to upload the required financial statements and credit report with a numerical credit score (credit report must contain a numerical credit score, your company’s name, and the date the credit report was prepared).

If you have any questions about these document requirements, please contact the CBIC customer service center at 877-577-5331 for assistance.

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¹Per 42 CFR §414.402 a covered document means a financial, tax, or other document required to be submitted by a bidder as part of an original bid submission under a competitive acquisition program in order to meet the required financial standards. Please see the Process for Reviewing Covered Documents fact sheet for additional information.