In the nonprofit world, 2024 has seen CFOs grappling with a multitude of challenges – from economic uncertainty and inflation to higher competition for funding, staffing shortages, fundraising and donor management challenges, and a greater demand for services. In Sage’s 2024 Nonprofit Technology Trends Report, 56% of surveyed nonprofits reported that revenue remains flat or lower – but 26% say participation in programs has increased this year, and 70% report that the cost of programs has increased. These pressures have made it increasingly clear that nonprofits need to optimize every aspect of their financial management to maximize impact.
Amid this challenging macro-environment, many nonprofit finance leaders continue to face traditional barriers: labor- and time-intensive closings; periodic audits that surface issues too late to affect decision-making; manual reporting; and unnecessary information delays. Yet, a rapidly growing abundance of computing power is unleashing a new innovation agenda for nonprofit finance – one that’s primarily driven by artificial intelligence.
AI has the potential to revolutionize how nonprofits manage their finances by streamlining processes, providing valuable insights, and ultimately driving greater mission impact. With AI, nonprofit accounting evolves beyond increasingly outdated tactical paradigms (think: the dreaded monthly/quarterly/annual closes and slow-rolling audits) and moves toward automated accounting and continuous analysis, allowing organizations to improve productivity and identify opportunities and risks far sooner.
Here are three ways in which AI can enhance nonprofit financial management:
1. Continuous, automated accounting
Many nonprofits struggle with manual data entry and repetitive bookkeeping, which consume valuable time and limits strategic focus. AI tools that draw on finance-centric models can automate these tasks, allowing finance teams to dedicate more time to activities that directly support the organization’s mission.
By automating routine tasks such as budgeting, expense reporting, forecasting, fundraising, and donor engagement, AI enables nonprofits to achieve stronger operational performance and, ultimately, better mission outcomes. This approach translates directly into increased efficiency, allowing organizations to allocate resources more effectively in response to changing needs.
Perhaps the most impactful aspect of AI-driven accounting is the elimination of the traditional close – a process that Sage market research has found can consume 25% of finance’s time.
By leveraging AI for continuous transaction coding and error detection, nonprofits can move toward a continuous close process, significantly reducing the time and effort required for month-end and year-end activities. This shift enables finance teams to focus on higher-value activities, such as analyzing trends, planning, and advising leadership on strategic investments.
2. Building trust through continuous assurance
Beyond streamlining day-to-day tasks, AI also plays a critical role in strengthening trust through real-time assurance. For nonprofits, where transparency and accountability are paramount, the ability to detect anomalies and potential issues as they arise is invaluable. With AI, nonprofits can elevate their audit and assurance processes, creating a continuous feedback loop that ensures accuracy and trustworthiness in financial data.
Our customers have told us that 10-20% of incoming journal entries require some form of correction – and that level of inaccuracy wastes time and erodes confidence. By deploying AI-driven continuous detection in the general ledger, finance teams can review and detect irregular activities and anomalies in real time. Exceptions get surfaced sooner, and they are fewer in number since the machine learning capability learns from new data continuously improving its ability to reduce false positives and false negatives.
3. Gain actionable insights
When it comes to making more informed decisions, AI offers nonprofits the ability to make informed and strategic decisions by quickly analyzing vast amounts of data and surfacing valuable insights. This allows nonprofit leaders to see a clear picture of their organization’s financial health and potential areas for improvement – all in a fraction of the time it would take a human to do. By leveraging predictive analytical capabilities, risk assessment tools, chatbots, and forecasting abilities, nonprofit leaders can make better financial decisions that help them more successfully pursue their mission.
Advanced analytics tools and machine learning algorithms empower nonprofits to gain deeper insights into financial operations and make better-informed decisions about future investments. For example, AI can analyze historical data from numerous sources, such as donor databases and public records to generate accurate forecasts of future fundraising efforts based on different scenarios and simulations.
Equally important is how finance interacts with the financial and statistical data. AI can transform this interaction, enabling nonprofit leaders to ask strategic questions in natural language and receive insights that inform their decisions. Imagine the ability to ask simple questions such as:
- What are the biggest funding opportunities and greatest expense risks for our organization?
- What is the ratio of revenue vs. number of members?
- How many meals have we served, and what was the cost per meal?
- What’s the student-teacher ratio?
- What’s the cost per clinician?
AI can generate the reports and KPIs, show you benchmarks, and make donor predictions. But its value extends further by also helping you also find answers to strategic questions:
- What would the financial impact on operational costs be if we built another building?
- How would an additional 1,000 members affect our overall revenue and program funding?
- How would expanding to a new region affect our budget?
These kinds of strategic insights enable nonprofit leaders to make smarter decisions that optimize resource allocations, anticipate budget shortfalls, and identify areas for cost-cutting without undermining program effectiveness. AI also eliminates human bias from decision-making. Since algorithms analyze data objectively without preconceived biases, nonprofit leaders can think beyond traditional answers and make better, more innovative decisions.
Of course, while it can assist with decision-making, AI should not replace human judgment – it should augment decision-making. Nonprofits must involve team members and use AI as a valuable support tool.
Achieving strategic impact at Operation HOPE
One nonprofit that is harnessing the power of AI is Operation HOPE, an organization dedicated to making free enterprise and capitalism work for the underserved. Previously, they faced extensive manual finance work and struggled to meet funders’ expectations for in-depth reporting.
With AI, Sage Intacct is improving the speed and accuracy of Operation HOPE’s finance team, even in the face of rapid growth. Although revenue has doubled in recent years, Operation HOPE hasn’t needed to hire additional accounting staff. Automation and AI-powered capabilities have helped deliver breakthrough efficiency as well as new abilities to quickly deliver in-depth grant reports, make data-driven decisions on programs and strategy, and dramatically improve finance’s efficiency.
Ultimately, AI’s emerging role in nonprofit finance is unlocking new paths to value both tactically and strategically. With less time, effort and cost devoted to administrative execution, and more resources freed up for strategic planning, nonprofits are better positioned to create greater mission impact.
