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About the Author:
Terry Kiwala
Vice President
Terry Kiwala is a vice president specializing in research and investment in software-as-a-service (SaaS) businesses, particularly in enterprise productivity applications. He is a thought leader in his sector, having authored widely read industry research. He uses his industry knowledge and expansive network to uncover promising investment opportunities and help companies navigate their strategic paths and accelerate growth. Prior to joining First Analysis in 2019, he was chief financial officer of Vokal, a software development company, senior vice president at Tribeca Flashpoint Media Arts Academy, and associate vice president at National-Louis University. Earlier, he was an investment banking analyst at Lehman Brothers. He earned a bachelor’s degree in economics and government from the University of Notre Dame. He is a CFA charterholder.
First Analysis Enterprise Productivity Technology Team
Terry Kiwala
Vice President
Corey Greendale
Managing Director
Richard Conklin
Managing Director
Matthew Nicklin
Managing Director
First Analysis Quarterly Insights
Enterprise productivity
Financial SaaS a key part of the fraud solution
September 30, 2020
  • The recent implosions of Luckin Coffee and Wirecard, among others, due to fraud indicate efforts by management teams and auditors to detect financial errors and malfeasance continue to fall short, fostering a degree of mistrust among investors that ultimately diminishes the valuation of all market participants. The problem is only worsened by the COVID-19 pandemic, which has corporate financial personnel typically working from home and makes direct supervision, internal coordination, and audit exams even more difficult.
  • We believe financial software-as-a-service (SaaS) will become a more important tool in minimizing the risk of fraud in companies and other organizations of all sizes. In particular, automated financial close and internal fraud detection software reduce the opportunity for error and manipulation by minimizing manual accounting processes and highlighting inconsistencies and anomalies in transactions. They also provide management and auditors easy and comprehensive visibility into accounting systems and records. We think auditors will be a leading force in pressuring their clients to adopt these solutions.
  • We provide a brief overview of these two solution categories and the role they play in mitigating fraud risk, and we highlight some representative providers.

TABLE OF CONTENTS

Includes discussion of BL, IBM, ORCL, WKL.AS and ten private companies

Massive frauds show financial systems, audits need to improve

SaaS financial automation software will likely be a key part of the solution

Automated financial close platforms bring integrity with efficiency

Internal fraud detection software catches problems outside the scope of financial close

Strengthening a key pillar of the global economy

Solid execution and guidance fuels sector's continued ascent

M&A valuations and activity reflect strong demand

Private placement activity consistent with historical levels

Massive frauds show financial systems, audits need to improve

Since March 2020, two public companies with formerly multi-billion-dollar market capitalizations - Luckin Coffee and Wirecard - have imploded due to fraud and, at least in the case of Wirecard, multi-year fraud despite having been audited without material adverse findings in prior years by its auditor, leading accounting firm Ernst & Young. Like other most other auditors, Ernst & Young certifies in its audit reports that it has examined its clients' financials using appropriate processes and that these examinations "provide a reasonable basis for [its] opinion."

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