The construction industry is experiencing lightheaded digital revolution, but it still grapples with legacy accounting systems and antiquated compliance procedures. Consequently, the sector has now accumulated more than $1 billion in IRS penalties, largely as a result of 1099 filing and accounts payable (AP) workflow breakdowns. But it’s not merely a financial matter. It’s an alarm call for Chief Information Security Officers (CISOs).
For CISOs, these compliance breakdowns represent more than just operational inefficiencies. They signal systemic security gaps that could expose companies to ransomware, data theft, vendor fraud, and long-term reputational damage. So, this article breaks down why CISOs must care about these penalties, what risks are at stake, and how to build security into compliance-first workflows.
Why $1B in Penalties Is a Cybersecurity Problem
The fines are only the tip of the iceberg. Underneath that number is a structure of disconnected business processes, exposed endpoints, and misaligned systems. When 1099 processes are based on email threads, spreadsheets, and paper documents, they provide unintended avenues for cybercriminals.
Unstructured data transfers and unsecured portals utilized in AP and contractor onboarding are high-priority targets for:
- Vendor impersonation and business email compromise (BEC)
- Theft of sensitive taxpayer and financial information
- Unauthorized access to procurement, HR, and accounting systems
- Malware or ransomware installation via phishing channels linked to AP workflows
Additionally, fines tend to emerge months after the initial error, slowing down the organization’s recognition of the point of failure or response time.
Why Is Construction Particularly Exposed?
Unlike central industries such as banking or healthcare, construction deals with decentralized teams and work. Each project location is a node with varied workflows, staff members, and vendor relationships. This decentralization introduces three fundamental weak points:
1. Distributed Access Points
Construction firms work directly on-site with devices that most rarely undergo enterprise-grade mobile device management. Eventually, Most access the plans or procurement system, or even internal communication tools, uncontrolled by authentic access policies.
2. Non-Standardized Onboarding
Most subcontractors are onboarded by project managers or also AP staff without structured digital identity verification or cybersecurity training. Credentials get provisioned intermittently, and there is no process for revoking those credentials when contracts expire.
3. Legacy Systems and Informal Communication
Most construction companies are using obsolete accounting packages and non-enterprise email accounts (such as Gmail, Yahoo). Legacy applications are not compatible with IAM, SIEM, or endpoint detection tools.
These features ensure that compliance-related errors are not only unavoidable but also actionable vulnerabilities.
The Interface Between Compliance and Cybersecurity
The IRS penalties are typically associated with missing, incorrect, or late 1099 forms. However, what CISOs should be aware of is that these are often manifestations of deeper IT mismanagement, such as:
- Lack of integration between ERP and security tools
- Inconsistent data validation across systems
- Poor third-party vendors’ user access provisioning
- Lack of system logging and monitoring
All compliance procedures, whether vendor onboarding or form filing, go through systems that are either hardened or exposed. CISOs need to take ownership of the infrastructure supporting compliance, not only the endpoints.
What CISOs Must Address Right Away
Work with Finance and Compliance Leaders
Establish a governance model that unifies compliance and IT security teams. Jointly assess workflows, define shared metrics (e.g., vendor risk score, filing error rate), and implement controls that align with both security and tax compliance goals.
Automate and Secure 1099 Workflows
Manual processes are error-prone and opaque. Introduce digital tools that automate data collection, validate TINs in real time, and also generate audit-ready documentation. Use encryption for all data transfers and enforce role-based access control.
Apply Zero Trust to Vendor Access
Use least-privilege principles and device-level authentication to control contractor access. Additionally, require MFA and isolate contractor traffic through segmented networks. Regularly audit access rights and enforce time-bound credentials.
Audit the AP Tech Stack
CISOs should look at not only what is used in accounts payable but also how these tools interact with each other. Are APIs encrypted? Are login logs also forwarding into your SIEM? Can your DLP system monitor file transfers from AP to external vendors?
Educate Finance and Operations on Security Hygiene
Offer specific cybersecurity training for HR, AP, and operations teams. So, this should include phishing recognition, safe document sharing habits, and incident escalation procedures. These groups are usually targeted since they are outside the traditional IT security boundaries.
Embed Compliance into the Risk Register
Align your organization’s risk register for cybersecurity with compliance workflows. Eventually, this gives visibility at the board level and enables prioritization of funding for secure automation.
Track Compliance Metrics as Security Indicators
Treat metrics like ‘late filings,’ ‘contractor re-verification gaps,’ or ‘manual form usage’ as indicators of potential security weakness. Use them to trigger audits or initiate workflow improvements.
Strategic Investments CISOs Should Consider
- AP Automation Platforms: Use AP automation that can integrate with cybersecurity platforms, supports secure data sharing, and offers real-time dashboards. Solutions like Zenwork’s Tax1099 can provide API-driven, encrypted, and compliant filing workflows.
- Vendor Risk Management Software: Third-party risk management tools score vendor security practices, validate credentials, and monitor access behavior throughout the lifecycle of vendors.
- IAM and SSO for Contractors: Implement identity and access management (IAM) platforms with single sign-on (SSO), automation of provisioning, and behavioral analytics to monitor contractor activity.
- Audit and Compliance Dashboards: Employ centralized dashboards that can monitor compliance health, filing status, access logs, and security posture all in one location.
Conclusion
The $1 billion in penalties is not just a compliance figure, it’s a red flag signaling deeper systemic vulnerabilities. For CISOs in construction, this is a critical inflection point. Waiting until auditors uncover security flaws embedded in financial workflows is no longer acceptable.
By embedding cybersecurity into compliance processes, especially AP and 1099 workflows, CISOs can not only prevent fines but also close high-risk security gaps. This convergence of compliance and cybersecurity isn’t optional; it’s a necessity for modern enterprise resilience.
FAQs:
1. Why should CISOs be concerned about IRS penalties related to 1099 filings?
Because compliance errors often stem from unsecured systems and manual workflows, gaps that cybercriminals exploit. Penalties are symptoms of underlying security vulnerabilities that CISOs are responsible for mitigating.
2. How does decentralized construction work increase cybersecurity risk?
With teams scattered across sites and relying on personal devices or legacy tools, access control becomes fragmented. Eventually, this creates unmonitored entry points for phishing, ransomware, and data theft.
3. What specific tools can help secure AP and 1099 workflows?
AP automation platforms with built-in encryption, API integrations, and audit trails, such as Zenwork’s Tax1099, can close compliance gaps while reinforcing endpoint and data security.
4. What role does Zero Trust play in contractor security?
Zero Trust principles enforce strict access controls by requiring user verification at every step. This includes MFA, device authentication, and automatic expiration of vendor credentials to prevent unauthorized persistence.
5. Can compliance metrics really indicate cybersecurity risk?
Yes. Metrics like delayed filings or manual onboarding reveal system weaknesses. Treating them as risk indicators helps CISOs proactively identify and address security blind spots before they escalate.
Want to future-proof your compliance strategy and reduce cybersecurity risk? Join Zenwork’s upcoming webinar on June 25 and learn how AP automation and 1099 digitization help construction leaders stay ahead of both penalties and breaches. Register here.
