Artificial intelligence (AI) is no longer a future concept for small accounting firms. It’s here, and it’s already changing how firms operate internally—especially those with 5 to 50 people.

But with opportunity comes risk. From client data security to regulatory compliance, AI introduces new challenges that accounting firm partners and managers must actively manage.

Here’s a look at the most common internal uses of AI among SMB accounting firms—and the most pressing security and compliance concerns, with a focus on what matters to firms in Michigan.

How Firms Are Using AI Internally

1. Automating Data Entry & Bookkeeping

AI is helping firms streamline time-consuming tasks like categorizing expenses, reconciling bank accounts, and generating reports. These tools reduce manual entry errors and free up staff to focus on higher-value activities.

2. Processing Documents Faster

AI can scan tax forms, receipts, contracts, and audit documentation—extracting the data you need or flagging inconsistencies. Instead of spending hours reviewing paperwork, AI tools can summarize content or pull out specific numbers in seconds.

3. Writing Emails, Job Posts, and More

Many firms are using generative AI (like ChatGPT or Microsoft 365 Copilot) to draft internal memos, job postings, client emails, and marketing content. It’s fast, convenient, and increasingly common—especially when paired with human editing for quality control.

4. Researching Tax Topics and Technical Issues

AI tools are becoming assistants for research—helping firms look up IRS guidance, find relevant tax rules, or even write simple Excel macros. Instead of Googling around or paging through codebooks, staff can ask targeted questions and get AI-generated answers (with proper review, of course).

5. Supporting Staff with Everyday Questions

Some firms are even using AI to help onboard new team members, draft SOPs, or troubleshoot tech issues internally. Think of it as a very fast junior associate—helpful for common questions, but always in need of oversight.

What Are the Risks?

While AI is unlocking real efficiency, partners and firm managers have a responsibility to understand and mitigate the risks. These are the most common concerns:

🔐 1. Confidential Client Data

AI tools, especially public ones, can expose sensitive data. For example, if a staff member pastes a client’s financial statement into ChatGPT to get help with formatting—it may violate privacy regulations or firm policies.

Once data is entered into a third-party tool, it’s often stored, processed, or even used to train the AI model. That’s a problem if you're handling protected financial or personally identifiable information (PII). Michigan firms—like those everywhere—must safeguard client trust and comply with AICPA confidentiality standards.

🛡️ 2. Cybersecurity Threats

SMBs are increasingly targeted by cybercriminals. If your team starts using new AI tools without IT oversight, you could introduce backdoors or vulnerabilities. Phishing emails disguised as “AI app invites” are already circulating. And attackers know smaller firms may not have enterprise-grade protections in place.

⚠️ 3. AI “Hallucinations” and Bad Advice

Even the best AI tools can make mistakes—confidently. That’s a big concern when it comes to interpreting tax law or financial guidance. AI is not a licensed CPA. Firms must ensure staff treat AI output like a rough draft, not a final answer.

📋 4. Regulatory and Ethical Compliance

Under FTC rules and IRS guidelines, firms must protect customer data and maintain proper security controls. Uploading client information into an unvetted AI platform could put a firm out of compliance.

In Michigan, firms should also keep an eye on proposed privacy laws like the Michigan Personal Data Privacy Act, which would further restrict how customer data is handled and shared.

🧠 5. Overreliance and Skill Erosion

Some leaders worry that junior staff could become too dependent on AI—bypassing opportunities to learn core accounting skills. Others worry about losing visibility into who’s doing what, especially if AI is being used “in the shadows” without firm-wide policies.

What Michigan Firms Can Do Now

Firms across Michigan are experimenting with AI, and many are finding success. But the key is building a framework that supports innovation and security at the same time.

Here’s where to start:

✅ Create a Clear AI Use Policy
Outline what types of AI tools are allowed, what data can and can’t be entered, and who approves new use cases.

✅ Train Your Team
Teach staff how to use AI effectively, review outputs critically, and avoid risky behavior like uploading sensitive data into public tools.

✅ Secure Your Systems
Use AI tools with strong security and encryption. Partner with a trusted IT provider to assess risks and ensure compliance.

✅ Pilot AI in Low-Risk Areas
Start small—use AI to summarize meeting notes or draft templates. Build comfort and confidence before rolling it out more broadly.

✅ Keep Humans in the Loop
No matter how helpful AI is, decisions and outputs still need review by qualified professionals. AI is a tool—not a substitute for expertise.

Final Thought

AI isn’t a threat. It’s a tool—and when used wisely, it can help small firms punch above their weight.

For accounting firms across Michigan and the U.S., the future is already arriving. The question isn’t if you’ll use AI—it’s how you’ll use it safely, ethically, and in alignment with your values and your clients’ trust.

Want help creating a secure, smart AI plan for your firm?
Let’s talk.