Michigan unemployment fraud now at $8.5B. Legislators have more questions.
With pandemic-related unemployment fraud now estimated to reach at least $8.5 billion, Michigan officials and legislators continue to spar over whether the state agency in charge of payments is fixing longstanding mismanagement.
- Michigan unemployment system still needs fixing, critics tell lawmakers
- Michigan doled out $3.9 billion in improper unemployment payments, audit says
Also unclear is whether more fraudulent payments will be uncovered, how much of the reported fraud is criminal and how much involves claims from unemployed workers who did not understand the system or the rapidly unfolding regulations that opened the door for millions to seek funds during the COVID-19 crisis.
The lack of some specific answers after a 2.5-hour hearing on Thursday in Lansing by the Joint Oversight Committee prompted Rep. Steven Johnson, R-Wayland, to tell Unemployment Insurance Agency Director Julia Dale to direct her staff to make sure no documents are destroyed. Johnson said a next step will be legal review of decisions made by the department since March 2020, when the pandemic first hit Michigan.
“It's important to us to make sure that…mistakes don't happen again in the future,” Johnson’s co-chair, state Sen. Ed McBroom, R-Vulcan, said ahead of the document request.
Dale is the UIA’s third director since the pandemic began, appointed by Democratic Gov. Gretchen Whitmer in October to lead the embattled agency charged with funneling money for lost wages to 2.4 million Michigan residents during the pandemic.
Thursday’s committee appearance was the second for Dale, who in November discussed then-recent revelations by the state Auditor General that fraud related to unemployment benefits had reached $3.9 million.
But by the end of December, that number leapt to about $8.5 billion, according to a report by accounting firm Deloitte. With that news came statements from UIA that most of the fraudulent payments were federal, which prompted Johnson to say that accountability in UIA still lags.
Problems in the agency have ranged from nearly 700,000 people being told they were ineligible for benefits after they already received them after the state’s applications didn’t meet federal standards, to overwhelmed state computer systems that crashed.
“I see a bizarre combination of bragging about money you didn't lose and making excuses left and right,” Johnson told Dale Thursday.
But Dale argued that problems in the troubled department — notably the fraud cases — have slowed since 2020. She said that over the recent holidays, for instance, the state experienced 10,000 fraud attempts, “and we did not pay out a single one of those claims.”
Dale said she understands lawmakers’ frustrations with the lack of information on how decisions relating to fraud were made in 2020 and how UIA decisions are communicated to the public. However, she said, “I'm working on (every one of these issues) as a direct result of what we have seen over the last two years.”
The hearing was held as UIA staff is processing overpayments and possible restitution requirements among an undetermined number of the 2.43 million Michigan residents who received benefits starting in March 2020 as the pandemic caused widespread job disruption.
Undetermined is how many people are affected by overpayments and potential restitution after cases were flagged for improper payments, and how the state will address them, Dale said. While at least 50 people are facing charges, including former UIA staff, other cases could result in wage garnishments or even waivers of repayment in some cases, if federal officials agree.
The fraud ballooned in Michigan after fraud controls were removed from the UIA system in spring 2020 to speed payments to claimants who were flooding the systems amid massive work shutdowns and layoffs in the early days of COVID-19.
Two types of mispayments were found in reports by accounting firm Deloitte, according to documents released by the state in late December:
- Imposter fraud, such as when someone set up false accounts, totaling up to $2.8 billion.
- Intentional misrepresentation, such as when someone said they’re eligible for unemployment funds but they’re found not to be, totalling up to $5.7 billion.
The bulk of the fraudulent payments were made between March and October 2020, according to the Deloitte report, a time when Michigan’s unemployment rate spiked to 23 percent and federal unemployment programs made new workers eligible for benefits, including part-time and self-employed workers.
But how many of those cases involved “intentional” misrepresentation remains undetermined, Dale said, after Johnson asked whether all of the people in that category could be called criminals.
Dale told legislators she is working with the state’s Attorney General’s Office to determine “fraudulent intent.”
State Sen. Jeff Irwin of Ann Arbor and Rep. Stephanie Young of Detroit, both Democrats, said they were concerned that Dale was unable to say if all of the $5.7 billion represented deliberate theft of benefits or people legitimately entitled to the money and didn’t fill out forms properly.
Meanwhile, multiple steps to improve UIA practices and accountability were recently enacted or are underway
Whitmer in late December established the Unemployment Insurance Fraud Response Team to coordinate among state departments and law enforcement to “identify, investigate and prosecute individuals who steal jobless benefits intended for Michigan workers,” according to her office.
The governor also issued an order directing UIA search for foreign IP addresses on claims as an indicator of potential fraud.
In addition, Whitmer ordered that technology to identify fraud cannot be suspended without approval from the director of the Department of Labor and Economic Opportunity.
The UIA also announced this week it will be among 18 states in a U.S. Department of Labor analysis of processes involving case fraud, backlogs and system updates to upgrade claims processing.
Dale said a revision of UIA communication — which has been criticized for its lack of clarity, including the use of double-negatives to explain a decision — is in progress. That effort was announced in September.
Moments before Thursday’s hearing, legislators also agreed to move multiple bills involving UIA out of the Joint Committee. Those bills, if passed, would stop seeking overpayment restitution from unemployed workers if the overpayment was the agency’s fault or discovered a year after it was made, and set a deadline for UIA staff to make determinations on claims, with some reviews from 2020 are still taking place.
Another bill would require the UIA to post the Unemployment Trust Fund balance on its website. Businesses pay into the trust fund to cover unemployment benefits when workers lose their jobs through no fault of their own. Dale said the trust fund — which started the pandemic at over $4 billion — now is at more than $1 billion. No increase to payments from businesses will be required, she added.
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