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After Falsely Accusing Thousands of Unemployment Fraud and Wrongly Taking Their Money, Michigan Makes Amends. But Is It Enough?

The state will refund close to $21 million to Michigan residents after reviewing cases in which an Unemployment Insurance Agency computer system falsely accused tens of thousands of people of committing benefits fraud, the agency said Friday after completing a review of affected cases.

By Paul Egan

The state will refund close to $21 million to Michigan residents after reviewing cases in which an Unemployment Insurance Agency computer system falsely accused tens of thousands of people of committing benefits fraud, the agency said Friday after completing a review of affected cases.

The agency said it reviewed 62,784 cases in which people were assessed a fraud penalty between October 2013 and August 2015 and did not seek an appeal and found that more than 44,000 of those cases -- or about 70% -- did not involve fraud.

The false fraud accusations began after the agency began using its $47 million Michigan Integrated Data Automated System (MiDAS) for a variety of functions, including fraud identification. The agency continues to use the system today, though with more human supervision, and has refused to say exactly how the huge number of false fraud allegations were made.

Those falsely accused of fraud were hit with highest-in-the-nation quadruple penalties, and in many cases subjected to aggressive collection techniques, such as 25% wage garnishes and seizure of income tax refunds.

"We took action after a hard look at every aspect of Unemployment Insurance, fixing the problems with guidance from national experts, people who use our system and our own staff who work with our residents each day," Talent Investment Agency Director Wanda Stokes said in a news release.

"Our top priority is helping our state residents, making sure they are treated fairly and get the benefits they need during a stressful time. Our initial focus was on a painstaking review of all the cases in question so we have the clearest picture of what we have to do to make things right and restore public trust in the system."

Attorneys for jobless claimants falsely accused of fraud, who are attempting to sue the agency or have already successfully done so, say more than the $20.8 million the state has promised to refund, is owed.

Ann Arbor attorney David Blanchard, who sued in federal court in 2015 and obtained a judge's order halting collection proceedings on affected cases, said the $20.8 million covers money wrongly taken from claimants but does not include interest or damages for those traumatized by wage garnishes and other measures associated with the false allegations.

Blanchard said he believes Stokes and other new leaders at the agency are sincere in wanting to improve things going forward, but "nobody really wants to talk about how bad it was and why it was bad," and "how many people were on notice (about the problems) and didn't care."

The numbers quoted by the agency Friday relate to unemployment insurance claims. Since some people have multiple claims, the number of people falsely accused of fraud over the less than two year period is somewhat less than 44,000. Dave Murray, a spokesman for the agency, said Friday that about 37,000 people had their fraud determinations reversed.

The agency said that in most of the cases that were reviewed, the claimant had received benefits which they were not entitled to, but did not intend to commit fraud.

Jennifer Lord, a Royal Oak attorney who is appealing to the Michigan Supreme Court after her class-action suit on behalf of those falsely accused of fraud was dismissed by the Michigan Court of Appeals, said the results of the review show "the system was as bad as we thought it was."

Lord's review of state financial statements shows that $20.8 million does not cover the amount wrongly taken by the state, she said.

And when damages are included, the state should have to pay more than $100 million, Lord said.

"This state-sponsored program hurt people in numerous ways," she said.

The nearly 63,000 fraud findings reviewed were lumped into two groups, the agency said Friday. It said 40,195 were robo-adjudicated by MiDAS with no human involvement and those had an 85% error rate. Another 22,589 cases involving some human interaction had a 44% error rate, the agency said. Earlier, the agency said the error rate for cases robo-adjudicated with no human involvement was higher -- 93%.

U.S. Rep. Sander Levin, D-Royal Oak, said the state's promise to return close to $21 million is "a positive step," but he remains concerned by several elements of the scandal, including the growth in an agency penalties and interest account from $3 million in 2011 to more than $160 million today.

The state has shifted millions of those dollars to help balance its budget over the last two years, Levin noted.

The Free Press reported July 30, based on records obtained under Michigan's Freedom of Information Act, that the agency apparently suffered a major glitch in importing data into the $47-million, meaning the system often accused people without having access to all the information it needed to make a fraud determination.

The records also show that agency officials should have known about the data problem more than one year before August 2015, when they stopped using the system without human intervention, the newspaper reported.

On July 1, the Free Press reported that Michigan's administrative law judges were among the first officials outside the agency to sound the alarm about flaws in the system, but that records obtained under FOIA show that a top official of the Michigan Administrative Hearing System pressured administrative law judges who were too critical of MiDAS, after hearing complaints from the Unemployment Insurance Agency.

In its news release Friday, the agency said it is seeking to improve communications with customers and working with a consultant, has identified "a significant number of suggestions for system improvements, resulting in enhanced training, policy clarifications, and computer system changes."

(c)2017 the Detroit Free Press

Caroline Cournoyer is GOVERNING's senior web editor.
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