The Rise of AI in Financial Reporting (and Why CFOs Love It)

Like most nonprofit organizations, you've had to deal with time-consuming manual reporting, version control issues in your worksheets, and limited visibility into financial health.

To overcome these challenges, you can harness the transformative power of AI in financial reporting and management to save time, enhance accuracy, and make faster and more informed decisions. 

For example, you can make financial reporting easier with Martus's ReportBuilder Assistant, which automatically creates customized reports. 

You can even forecast cash flows and report on actuals vs. budget variances in real time. 

Schedule a personalized consultation with us today to learn more about financial reporting with Martus.

The Role of AI in Modern Finance

Artificial intelligence (AI) helps with several general areas in modern finance. It helps manage fraud and risk, automate operations and reduce costs, and enable transparency and compliance.

There's more to AI in finance than just robots, as evidenced by popular roles such as:

• Automating Repetitive Tasks: You can use AI to automate tedious tasks with greater accuracy, saving time in the process. AI can automate the creation and reconciliation of reports, allowing you to spend more time on strategic work than on data wrangling. 

• Mine Vast Amounts of Data: AI can analyze vast amounts of data and uncover relationships that humans cannot, which makes it easy to make financial forecasts. For example, CFOs use AI to predict cash flow changes, adjust expenditure based on seasonal changes in revenue, and model multiple revenue and expense scenarios with reduced guesswork. 

• Driving Insights for Various Financial Functions: AI provides insights that help with data analytics, measuring performance, forecasting, and calculating things in real time. It unlocks value from data, enabling organizational intelligence and informed decision-making. 

• Risk and Fraud Management: In nonprofits, AI can help detect abnormalities, such as fraudulent transactions. This helps the organization reduce risk and fraud. You can flag suspicious activities before they escalate and support proactive responses to incidents. 

• Enabling Transparency and Compliance: Using AI for financial reporting helps nonprofits foster financial transparency. Your organization can promote financial visibility for all teams and stakeholders, including funders and the board. AI also makes it easier to comply with donor and grantor requirements, such as using and reporting on specific restricted funds. 

Generally, AI complements nonprofit financial teams by automating low-value manual tasks, such as compiling monthly reports. 

In this way, AI acts as an enabler rather than a human replacer, especially for small teams or those struggling with limited personnel budgets. 

AI enhances human judgment when clear accountability structures are maintained, ensuring that all AI-driven decisions are auditable, explainable, and based on high-quality data. 

Key Benefits of AI in Financial Reporting

AI financial reporting can reduce pressure on financial teams by delivering the following benefits.

• Faster Month-End Close: AI accelerates the month-end close process by automating recurring tasks, such as data entry and report generation. 
• More Accurate Forecasting: You can improve forecasting accuracy through AI, which uses predictive analytics, trend identification, and real-time data analysis. AI can analyze historical financial data and trends at scale to produce more accurate predictions of income, expenses, and cash flow. 
• Fewer Errors from Manual Entry: AI minimizes the risk of human error by automating tedious tasks, leading to more accurate and reliable reports. It eliminates manual data input and automates calculations. You can enjoy reduced costs because fewer errors can reduce the resources you would spend on reviewing and correcting them.
• Better Grant Reporting and Audit Preparedness: With AI, you enhance accuracy, efficiency, and compliance in grant reporting. AI can automatically generate grant reports, ensuring accuracy and consistency. It can also help ensure you are always ready for audits. AI can ensure your financial records comply with grantor and government regulations, such as ensuring grant-based projects are accounted for. 

AI Use Cases in Financial Reporting

AI can help you streamline your financial process and amplify your impact through automation, better accuracy, and valuable insights.

Let's check out some common use cases for AI in nonprofit financial reporting.

• Auto-Generating Reports: AI can automatically generate financial reports after analyzing data, ensuring your team spends more time on strategy and financial analysis. It can help you generate reports across multiple funds or programs in real time. AI can continuously import data from your accounting platforms, which use fund accounting to manage different grantor or donor funds across programs. 

• Real-Time Variance Analysis: AI can automate the process of detecting variance and providing proactive alerts to allow for better decision-making. It can check data and uncover differences between actual results and planned budgets. The system can then send automatic alerts to your team in real time if a variance exceeds a preset threshold, allowing for timely review and corrective measures. 

• Predictive Cash Flow Modeling: You can use AI to analyze vast datasets and identify patterns to help you create more accurate and dynamic cash flow forecasts. AI systems can analyze historical data on donations, grants, and expenses. This enables you to continuously update and adjust forecasts rather than rely on periodic updates and static assumptions. You are able to anticipate shortages or surpluses to proactively plan for resource allocation and fundraising efforts. 

• Tagging and Categorizing Expenses by Function: With AI, you can automate and improve how you tag expenses based on program, fundraising, or administrative functions. You can review expense amounts and descriptions and place them in the right expense categories, ensuring consistent classification. It's even possible to train advanced AI to recognize specific expense categories and rules related to your organization to allow for tailored expense management. 

Tools Powering AI in Financial Reporting

Unlike generic software and spreadsheets, AI tools automate reporting processes, saving you time and improving accuracy. 

General-purpose tools help with financial reporting, but they often fall short. 

Instead, nonprofit-specific financial management tools are better. For example, they can handle fund accounting, which allows you to track and report restricted and unrestricted funds, grants, and program-specific expenses. 

Spreadsheets limit collaborative workflows, are prone to errors, and can't be scaled sufficiently to meet modern financial management needs. 

Instead of relying on such outdated solutions, your organization would be better off relying on the AI capabilities of Martus, a nonprofit-focused financial management tool. 

Martus streamlines how you manage your finances, including advanced real-time reporting based on data aggregated from your accounting software and ERP systems. 

At Martus Solutions, we empower your financial and non-financial teams with collaborative, easy-to-use financial reporting tools. 

For example, we have the brand-new ReportBuilder Assistant, which streamlines reporting by allowing you to create customized financial reports. 

With the ReportBuilder Assistant, you can describe the report you want rather than create it from scratch, ensuring you get accurate reports without applying any scripts or formulas. 

Besides, you also get insights faster with far less effort. This is helpful if you have a lean team or struggle with multiple responsibilities and time constraints. 

Request a personalized demo to see Martus in action today. 

How to Implement AI in Your Financial Reporting Process

Implementing AI can be tricky. You'll want to start small by automating recurring reports or preparing a starter packet for the board. 

You can follow these steps to adopt and implement AI successfully in your financial reporting process:

1. Identify Time-Consuming Tasks: Review your reporting tasks to identify those that consume the most time, such as manually entering data. 
2. Select the Right Platform: Based on the above needs, choose the most suitable financial management tool. For instance, to eliminate manual data entry, look for a tool that can automatically pull data from your accounting tool. Martus integrates with your accounting software to import financial data, reducing human error and saving you valuable time. 
3. Ensure Clean Data Inputs: Pulling data from your accounting tool isn't enough. You must ensure data integrity through the use of access controls and role-based permissions. These ensure your data is not only protected from unauthorized access but also that your workflows are safeguarded from unwanted changes. 
4. Train Your Teams to Interpret Reports: Besides training your financial and non-financial teams to use the tool, you'll need to train them on how to interpret the reports generated to make manual and AI financial analysis easier. At Martus Solutions, we use a train-the-trainer system that helps you to develop your own local experts on Martus for easier implementation. 

The Future of AI in Financial Reporting

Even as many advances have been made in the field, there's still considerable potential in AI and financial reporting systems. 

You can expect the trends outlined below to continue going forward. 

• Generative Report Summaries: AI systems will continue to evolve into conversation-style systems that provide real-time summaries, helping teams better understand automatically generated financial reports. You'll be able to ask the system to compare and summarize multiple reports, identifying patterns and trends the human eye might miss. 

• Real-Time Alerts: AI tools will get better at sending instant notifications, such as when reports are ready or certain predefined anomalies happen. 

• AI-Driven Decision Support: Besides surfacing data-driven insights for decision-making, AI tools will use conversation-style dashboards to help teams review their decisions in real time. You'll be able to assess your decisions by using AI to review them against the analyzed data and the generated AI insights. 

• Shift from Data Reporting to Data Storytelling: AI will continue to transition from static data reporting to dynamic data storytelling, leveraging data for enhanced insights. This is possible through automated data analysis to identify trends in datasets and create compelling visualizations that tell a personalized narrative. Different audiences will receive reports tailored to their specific needs, in easy-to-understand languages, tones, and levels of detail. 

As an organization, you'll want to start early and build a tech stack that grows with you rather than wait for AI systems to be perfect. 

You can start with a formidable nonprofit financial management software like Martus and continue to grow with it as your organisation expands and the software improves. We are continually improving to serve you better!

Frequently Asked Questions (FAQs)

We'll close today's blog with popular questions around AI and financial reporting. 

Does AI Replace Human Accountants in Financial Reporting?

AI does not replace human accountants in financial reporting. Instead, it makes their work easier by automating repetitive activities. It also enhances human judgment by surfacing valuable insights that humans would take longer to discover and act upon. 

Can Small Businesses Use AI for Financial Reporting?

Both small and large businesses and organizations can use AI for financial reporting. AI can help teams automate reporting activities, such as generating reports, regardless of the amount of their financial data. 

Is AI in Financial Reporting Cost-Effective for Mid-Sized Enterprises?

AI is cost-effective for mid-sized enterprises and organizations. You can enjoy cost savings from early detection of risks, which allows for prompt corrective action before issues escalate and increase your costs. 

What Are the Regulatory Guidelines for Using AI in Financial Reporting?

Common regulations for using AI in financial reporting include: 

• Establishing robust governance frameworks for AI to manage the risks associated with AI models, such as errors, biases, and system failures. 
• Regularly auditing and testing AI models for accuracy and reliability to ensure compliance and identify vulnerabilities. 
• Using transparent and explainable AI models that make it easy to understand how decisions are made. 
• Using high-quality and unbiased data to prevent algorithmic discrimination.
• Complying with data privacy and security requirements. 
• And more.

Conclusion

With AI in finance, your nonprofit can do much more with less, including better reporting with faster insights and fewer errors. 

To get on board and avoid missing out, you'll want to explore a tool like Martus for AI-driven financial reporting capabilities. 

You can streamline reporting and future-proof your organization's financial operations through Martus's automation. Martus enables you to focus more on strategy and analysis than data wrangling, thereby increasing your chances of effective financial management. 

Book a customized demo now to discover how Martus can transform your financial reporting processes.