What is Shadow AI and Why Should Michigan Firms Care?

Shadow AI is the quiet rise of employees using generative AI tools (ChatGPT, Claude, MS Copilot, Gemini, etc.) without IT approval or governance. Just like “shadow IT” a decade ago (think Dropbox or Gmail for business files), Shadow AI is now creating compliance and client trust risks for professional service firms across Michigan.

For accounting firms, this might mean uploading financial records, payroll data, or tax documents into unapproved AI tools. For law firms, it could mean pasting confidential case files, contracts, or client communications into a chatbot.

The problem? Once that data leaves your firm’s walls, you may lose control and your insurer or regulator won’t accept “we didn’t know” as an excuse.

How Common is Shadow AI in Firms Like Yours?

• 78% of employees admit they use AI tools not approved by their employer【news.sap.com】.

• 68% of workers reported using free AI tools, and over half pasted sensitive data into them【menlosecurity.com】.

• In legal work, 82.8% of documents sent to AI land in “shadow AI” accounts without oversight【cyberhaven.com】.

• Shadow AI usage in regulated industries has surged 200% year-over-year【nojitter.com】.

In Michigan’s accounting and legal sector, where client trust is the brand, those statistics should set off alarms.

What Are the Biggest Shadow AI Risks for Accounting and Law Firms?

Q: Can Shadow AI leak client data?
Yes. When staff upload tax filings, contracts, or privileged communications into public AI tools, that information may be stored, logged, or even used to train future models.

Q: Does Shadow AI create compliance problems?
Yes. Firms risk violating HIPAA, ABA confidentiality rules, or AICPA standards plus falling short on cyber liability insurance requirements tied to frameworks like CIS Controls v8.1 or NIST CSF 2.0.

Q: Could client trust be damaged?
Absolutely. One misstep with confidential data, and clients may see your firm as careless with their most sensitive information.

Why Shadow AI Feels Familiar: Shadow IT 2.0

Like Shadow IT before it, Shadow AI grows because:

• Staff want speed and convenience.

• Firms lack approved, secure AI options.

• Policies are outdated or unclear.

• Training hasn’t kept up with new tech.

In short, people are trying to be more productive but in ways that bypass compliance.

What Should Michigan Accounting and Legal Firms Do About Shadow AI?

1. Acknowledge it’s happening. Pretending employees aren’t using AI is wishful thinking.

2. Audit current usage. Use surveys, logs, or tools like DLP/CASB to see where Shadow AI is already in play.

3. Create an AI policy. Define what’s allowed, what’s off-limits, and which tools are approved.

4. Offer secure alternatives. Deploy Microsoft Copilot for Business or other enterprise-grade AI tools.

5. Train your staff. Show them why data can’t be pasted into random chatbots.

6. Monitor ongoing use. Keep guardrails updated as AI and regulations evolve.

Local Reality: Michigan Firms Are Already Under Pressure

• Cyber liability insurers are adding AI risk questions to renewal checklists.

• Clients (especially larger corporate ones) are asking about how their data is protected.

• Compliance frameworks like CIS 8.1 Group 1 (the insurance baseline) and NIST CSF 2.0 now expect firms to manage AI as part of their risk strategy.

If your firm is in Detroit, Southfield, Ann Arbor, or Grand Rapids, you’re not immune. Shadow AI is creeping into offices of every size from 5-person practices to 50-staff regional firms.

Bottom Line

Shadow AI is already inside your firm. You can’t ban it away but you can govern it.

For Michigan accounting and legal leaders, the path forward is:

• Shine a light on where AI is being used.

• Put guardrails in place to keep usage compliant.

• Enable safe adoption so your people can use AI productively without risking client trust or insurance claims.

At Big Water Tech, we help firms keep IT simple, secure, and compliant including managing the hidden risks of Shadow AI.

👉 Let’s talk about an AI risk audit or policy review for your firm.