Kahle: Audit of Michigan unemployment agency reveals key errors during COVID-19 pandemic

LANSING — Findings from the state auditor general show the Whitmer administration made key errors that prolonged confusion and anxiety for many Michigan workers as they sought assistance from the state unemployment office during the pandemic, state Rep. Bronna Kahle said in a news release.

Shortcomings in the Michigan Unemployment Insurance Agency Office caused $3.9 billion in overpayments during the processing of 5.4 million unemployment claims amid the COVID-19 pandemic, the audit said.

A report summarizing the findings of Michigan Auditor General Doug Ringler said the audit found "a variety of actions and inaction by UIA’s senior leadership during the COVID-19 pandemic contributed to a poor control environment (tone at the top)." Those actions, Ringler said, directly contributed to the creation of invalid Pandemic Unemployment Assistance (PUA) questions that ultimately led to nearly 700,000 claimants receiving letters this summer that said they had to requalify for benefits.

The audit said it appears that at least 347,437 of the 648,100 claimants who received the letter are now classified as ineligible for benefits.

PUA was launched in March 2020 to expand benefits to workers who typically wouldn't be eligible for unemployment benefits, such as contract workers and freelancers. In July, the UIA sent letters to PUA benefits recipients and said they'd have to requalify using a new set of criteria. Kahle’s release said the letters “caused fear and confusion by mentioning the possibility of back payments.”

While the agency didn't make those recipients pay back benefits they'd received improperly, the letters caused anxiety for many who were unsure what the letters meant and ultimately led to an investigation by the Michigan House Oversight Committee and calls for the removal of the acting director of the agency.

Leadership at the unemployment agency has changed at times during the pandemic. Former Director Steve Gray resigned in November 2020. He was replaced by acting Director Liza Estlund Olsen, who then was replaced by current Director Julia Dale.

The House Oversight Committee has held multiple hearings on the issue, Kahle said.

“The audit proves there was a significant level of avoidance happening from the top down within the governor’s administration,” Kahle said. “Michigan workers have experienced countless problems with the unemployment agency for nearly two years, creating huge hurdles for their families. The governor’s team has failed to be open and honest about the situation from the beginning.”

Dale, who took over the agency in recent weeks, acknowledged the audit's findings in an email statement when the audit report was released Nov. 18, saying the agency is working to implement the suggestions, but she maintained that the agency should still be proud of the work it has done.

"The work the UIA did this time supported millions of Michiganders by providing a temporary lifeline to pay for food, housing, prescriptions and other critical needs. So far, more than $39 billion has been paid out to nearly 3.5 million Michigan residents," Dale said. “But we should also be sure to learn from this experience so that we can do a better job of stopping fraud and paying legitimate claims in a timely fashion.”

The audit said based on the review of internal emails, Gray discussed PUA eligibility criteria with senior staff at the agency, senior leadership at the Department of Labor and Economic Opportunity and the executive office of the governor as early as April 2020.

A PowerPoint prepared for the executive office of the governor listed the pros and cons of “paying ASAP and establishing eligibility in parallel” versus “establishing eligibility and delaying payments until eligibility is verified.”

One slide, according to the audit, indicated that any federal benefit the agency paid in error wouldn’t need to be reclaimed, an advantage for paying the benefit as soon as possible.

The audit said despite the fact that the agency said there was confusion over how to interpret the PUA qualification requirements, the agency didn't seek clarification from the U.S. Department of Labor, it couldn't explain its rationale for using the eligibility criteria that had no relationship with federal guidance and couldn't explain why it didn't correct its criteria when the Department of Labor first communicated the issues to the agency in June 2020.

The unemployment agency paid out hundreds of millions in fraudulent claims, delayed payments for months to tens of thousands of people who were out of work under the governor’s pandemic orders, and continually obstructed legislative oversight and deceived federal regulators by stating the problems had been addressed, Kahle’s release said.

Funding veto

“What’s worse is that the governor repeatedly vetoed budget plans to inject additional funding into the unemployment trust fund to offset fraud-related losses,” Kahle said in the release. “Leaving Michigan’s small businesses on the hook for her administration’s mistake.”

When Whitmer removed funding from a COVID-19 bill in December, she said it would have amounted to a tax break for big businesses related to unemployment benefits and wouldn’t affect the availability of jobless benefits. The rest of the measure, which Whitmer signed into law, included more than $60 million for business grants and $45 million for direct payments to workers.

Typically, businesses pay into the unemployment trust fund, with the money then used to pay unemployment benefits.

"To be very clear, this will not impact individual workers. General fund dollars have got to be used to fund essential services, like vaccines and PPE, not to give tax breaks to big businesses right now," Whitmer said at the time.

Republicans said that bill was tied to other legislation related to how long unemployed workers would be qualified to receive benefits. The veto ended up cutting the number of weeks from 26 to 20.

It was under former Republican Gov. Rick Snyder's administration that benefits were permanently reduced to 20 weeks. Whitmer reversed that decision, using her emergency powers to temporarily extend benefits to 26 weeks in the early days of the pandemic. With that extension, plus federally funded programs, claimants were eligible for up to 59 weeks of benefits in Michigan.

A Michigan Supreme Court ruling essentially invalidated her executive orders in the fall. The state Legislature temporarily continued that extension of benefits, but that extension has expired.

Eligibility criteria

In its report, the auditor general also determined the state agency continued to make improper eligibility determinations and related overpayments for nine months after the U.S. Department of Labor first notified the Whitmer administration of the problem.

Nearly $4 billion in overpayments were made due to the noncompliant eligibility criteria, according to the audit. From March 15, 2020, through Sept. 27 of this year, the agency paid nearly $39 billion in total unemployment insurance from 5.4 million claims and just over 3.4 million claimants. The PUA claims are included in the total figures.

Kahle said the failure of leadership within the unemployment agency continues to cause hardship for people throughout Lenawee County and across Michigan. For the past two years, she and her staff have worked to rectify issues that hundreds of local workers have had with the system.

The audit report is the first in a series of expected audits on the Whitmer administration’s processing of unemployment claims during the COVID-19 pandemic, Kahle’s release said.

The agency is not required to act on the auditor’s findings or recommendations, but is given a chance to respond and typically details changes to correct findings and implement recommendations it agrees with. The auditor general, who works for the legislative branch of state government, will often do follow-up audits to see whether identified problems persist in the executive branch agency.

The Detroit Free Press and Associated Press contributed to this report.

This article originally appeared on The Daily Telegram: Rep. Kahle: Audit of Unemployment Insurance Agency reveals errors