3 Truths and 1 Lie About Using AI in Nonprofit Financial Management
Artificial Intelligence (AI) technology transforms how organizations approach financial management, and nonprofits are no exception.
With the ability to automate processes, provide data-driven insights, and increase efficiency, AI is an attractive tool for nonprofits looking to improve their financial management strategies.
But with so much hype surrounding AI, it can be difficult to discern fact from fiction and overcome misconceptions and fears about the rapid change promised by AI.
In this blog post, we’ll uncover three truths and one lie about how artificial intelligence revolutionizes how nonprofits handle their finances.
Get ready to challenge your assumptions, explore possibilities, and harness the exciting potential of AI in your organization’s financial operations.
Let’s dig in.
“Digitally mature organizations – only one-in-eight globally – outperform their peers regardless of their revenue, headcount, or geographic location. They are 4x more likely to achieve their mission goals and 2x more likely to see improvement in operational efficiencies.”
What is AI?
AI is a set of advanced software technologies that enable computers to simulate human actions and intelligence. The goal of AI is to empower humans by programming machines to perform tasks that typically require human thinking, such as pattern recognition, problem-solving, creating, and learning. There are several subsets of AI that are relevant for current nonprofit financial management:
- Machine Learning: This involves using algorithms and statistical models to analyze data and make predictions without being explicitly programmed.
- Natural Language Processing (NLP): NLP allows computers to understand, interpret, and manipulate human language.
- Robotic Process Automation (RPA): RPA automates routine, repetitive human tasks so that they can be carried out by software instead.
Going forward, many nonprofits will utilize combinations of AI technologies within software systems such as financial management, fundraising, and donor management.
In doing so, they can automate routine tasks, analyze data and forecasts, and ensure compliance for stronger operational performance and better mission success.
Some of the areas where nonprofits will utilize AI include:
- Budgeting
- Expense reports
- Accounting
- Fraud detection
- Financial reporting
- Fundraising
- Donor engagement
- Grant management and compliance
What Impacts Might AI Have On Nonprofit Finance?
AI has the potential to revolutionize how nonprofits manage their finances by streamlining processes and providing valuable insights.
Here are some ways in which AI can enhance nonprofit financial management:
Automating manual tasks
Many nonprofits struggle with manual data entry and repetitive bookkeeping and reporting tasks that take up valuable time.
Implementing RPA can automate these tasks, freeing up staff time for more critical responsibilities.
Improving accuracy
Human error is inevitable when managing finances manually.
AI algorithms embedded in nonprofit accounting solutions scan and analyze transactions, looking for anomalies that can alert human professionals for further review.
With AI, organizations can expect a higher level of accuracy in record-keeping and forecasting.
Finding meaningful insights within large data sets
AI can analyze vast amounts of data in real-time, providing nonprofits with valuable insights into their financial health and potential areas for improvement.
Truth #1: AI speeds up accounting processes and enables continuous accounting
A cloud nonprofit accounting system, such as Sage Intacct, has the ability to improve finance team efficiency by substantial amounts.
AI technology can streamline processes and reduce human error by automating repetitive tasks with tools such as robotic process automation.
To automate data entry tasks, Accounts Payable and Accounts Receivable can use AI to ensure that physical documents, such as receipts and bills, are captured quickly and easily.
For example, employees can take pictures with a mobile phone or scan and submit PDF files, where AI extracts relevant data, categorizes, posts, and reconciles it for them.
Because AI can handle very large volumes of data and perform the same repetitive task without error, it can free up time for staff members to focus on higher-level tasks that require critical thinking and decision-making.
Tasks such as GL outlier detection, bookkeeping, invoice processing, and expense tracking can all be done efficiently by machines without human error or bias.
As nonprofit accounting solutions became more advanced through the years, many organizations were able to speed up their month-end and year-end close.
Today, AI tools are taking nonprofits closer and closer to eliminating the financial close through continuous accounting.
Financial management software must be able to capture transactions continuously, reconcile what’s captured in real-time in the accounting solution with what’s available from external sources, and adjust or apply accounting treatments to transactions as information changes.
Finally, AI can streamline processes by improving communication within an organization by implementing chatbots or virtual assistants.
These tools provide quick responses to frequently asked questions about finances or donation processes without continually requiring human intervention.
Truth #2: AI can enhance data-driven decision making
AI has a lot to offer nonprofit organizations when it comes to helping them make more informed decisions.
By leveraging its predictive analysis capabilities, risk assessment tools, chatbots, and forecasting abilities, nonprofits can make better financial decisions that ultimately drive success in achieving their mission.
Instead of relying on outdated reports and intuition, AI analyzes vast amounts of data in a fraction of the time it would take a human, presenting fresh insights to decision-makers.
Through advanced analytics tools and machine learning algorithms, organizations can gain deeper insights into their financial operations and make better-informed decisions about future investments.
Predictive analytics can analyze historical data from various sources, such as donor databases and public records, to generate accurate forecasts for future fundraising efforts.
AI technology can assist nonprofits with forecasting future financial outcomes based on different scenarios.
Nonprofit leaders can then improve resource allocations, better predict budget shortfalls, and identify areas for cost-cutting that will not compromise program effectiveness.
Finally, AI technology eliminates human bias from decision-making processes.
With algorithms analyzing data objectively without any preconceived notions or biases, nonprofit leaders can think outside the box of ‘how things have always been done’ and make better decisions.
It’s essential to add that while AI can assist with decision-making, it should not replace human judgment.
The technology is intended to augment the decision-making process, not replace it.
It’s crucial for nonprofits to involve team members in the decision-making process and use AI as a valuable support tool.
Truth #3: AI can flag errors and identify potential fraud
One of the main challenges faced by nonprofit financial management professionals is manual data entry.
AI-powered tools such as optical character recognition (OCR) can automate data entry from physical documents into digital systems accurately and efficiently.
This eliminates the risk of human error and ensures all financial information is recorded accurately.
Sage Intacct utilizes a digital assistant as an extension of the nonprofit finance team, providing a conversational interface for monitoring performance, detecting irregular transactions, and flagging unusual activity or unauthorized access.
When this tool identifies any abnormalities, it notifies the right person promptly through alert messages for review.
Additionally, the digital assistant can be utilized in corporate communication tools to assist employees who may not typically work directly with Sage Intacct in expediting processes like purchase order approvals or expense report submissions.
AI can also help spot accounting errors and potential fraud.
With the help of AI technology such as machine learning algorithms, errors and potential fraudulent activities can be detected early on by analyzing patterns in transactional data and flagging any data anomalies for further investigation.
By implementing GL outlier detection measures using AI, nonprofits can eliminate a lot of time manually reviewing journal entries for accuracy and maintain a high level of integrity and build trust with donors.
The big lie: AI will replace employees
There has been a growing fear that artificial intelligence (AI) will eventually replace human workers across all industries. However, this belief is more of a myth than reality.
While AI has the potential to improve and optimize processes, it cannot replace the dedicated nonprofit professionals who ensure organizations achieve their mission for several reasons.
First, AI needs human financial management experts with experience and institutional knowledge to review the data patterns and insights it identifies.
For example, AI will flag anomalous transactions, but humans should dig deeper and determine if these transactions constitute an error.
Second, while AI can process troves of data in mere seconds, it lacks emotional intelligence and human compassion.
In the nonprofit sector, where relationships are crucial for success, having empathetic individuals leading financial management efforts is essential.
Certain aspects of nonprofit financial management—such as maintaining relationships with donors—simply cannot be done by machines alone.
Finally, AI excels at analyzing data trends, but it still needs human input to interpret the results accurately.
AI enhances human work by automating tedious tasks and freeing up time for critical thinking and problem-solving skills.
Nonprofit financial management involves complex decision-making processes that require an understanding of both quantitative data and qualitative factors.
Human judgment plays a significant role in making these decisions while considering ethical implications as well.
Final thoughts
The potential for AI in the nonprofit sector is immense, and its effective use can lead to significant improvements in financial management practices and mission impact.
Far from replacing humans, AI empowers them by automating repetitive tasks, identifying errors and inaccuracies, freeing up more time for people to strategize, and enabling them to rapidly move their mission forward.
By analyzing data and providing valuable insights, AI enables nonprofit leaders to make more data-driven and strategic decisions that align with their mission and goals.
To learn more about how to enhance decision-making through technology and automation, download The Rise of the Data-Driven Nonprofit Finance Leader e-book.
