Michigan paid millions in unemployment to people who were incarcerated or dead, audit finds

The Michigan agency in charge of unemployment benefits doled out hundreds of millions of dollars to people who are potentially ineligible, including some who were in prison or dead, according to the findings of the Office of the Michigan Auditor General.

Even after determining people who filed claims were in prison or dead, the Unemployment Insurance Agency still paid them $1.7 million, the auditor found.

When fraud was identified by the agency's investigations unit, the agency undercalculated penalties by nearly 50% due to issues with its internal computer system, the auditor found. And while it still can pursue an additional $840 million in fraud penalties, the agency rarely attempted to identify fraudsters, recoup ill-gotten benefits or assess penalties in a few selected transactions reviewed by the auditor.

The findings, released Wednesday, are the latest in a series of reviews by the auditor of the beleaguered agency, which operates under the Department of Labor and Economic Opportunity.

Agency leaders said they made changes and pledged continued improvements.

“We will continue to work cooperatively with the (auditor), as we have for the last three years on these issues. We appreciate their partnership in reform,” agency Director Julia Dale said in a news release.

The total findings include:

• Between January 2020 and October 2022, the state paid $245 million in payments to people potentially ineligible, including dead people, those in prison, residents of long-term care facilities and those employed by the agency or the labor department.

• The agency undercalculated fraud penalties by 49.4% because of issues with an internal data system. The agency could still pursue up to $840 million in additional penalties.

• After reviewing a series of 30 cases, the auditor found the agency did not try to identify 70% of fraudsters.

• In the same cases, the agency did not attempt to recover 96.7% of related payments or assess fraud penalties.

• The agency also did not refer 90% of these selected fraud cases to law enforcement.

Agency says it's reforming, promises to do better

The agency partially agreed with all of the auditor's findings. It noted that many of these issues stem from long-standing problems identified in previous audits, leaders are aware of the problems and working to address them.

“Since the end of the global pandemic, and under new leadership at UIA, we have built an entirely new bureau and overhauled existing systems to fight fraud and provide better service for Michigan workers and businesses, and data proves that these efforts are paying off,” agency Director Dale said.

The release noted that the agency did not think the selected cases reviewed were reflective of all of the agency's work. It also noted it has recovered more than $90 million through pursuing fraudulent actors.

The audit notes almost 5,000 claims came from people who were incarcerated, with another 3,000 coming from people who were actually dead. While the agency says it has a system in place to identify and flag these potential transactions, the auditor said that system appeared to fail in at least some cases.

"(The agency) performed data analysis for incarcerated and deceased claimants later in our audit period but did not take meaningful action to follow up on the majority of the matches because it mistakenly believe the requisite fact finding would soon be automated. (The agency) paid at least $1,710,000 to claimants after identifying them in the analyses," the audit states.

The agency said it now has an automated process to check the identity of those filing claims with death and incarceration records.

The auditor also found claims going to agency contractors and potentially to labor department employees. The same analysis pointed to people likely too young or too old to legitimately receive benefits: 161 claims came from people younger than 14 while another 89 came from people purportedly 100 years old or older.

The agency told auditors it has a system in place to accurately review the ages of people filing claims.

While the agency told the auditor it has implemented nearly all of the recommended improvements, the auditor disagreed with the agency's assertion that most of the issues happened at the beginning of the pandemic.

"These challenges didn’t come up overnight — nor will the solutions. But we are making major strides in solving them and reshaping the way we interact with the public," states part of the agency's response to the audit.

Dealing with flood of pandemic claims

Nearly four years later, the agency is still dealing with the fallout from the pandemic when millions of workers filed for jobless benefits as businesses closed and others took advantage of the more generous benefits, filing fraudulent claims.

More than 5.9 million claims were filed in the pandemic by more than 3.5 million claimants, the agency said.

The agency hired 30 new limited-term employees in October with a $2.6 million grant from the U.S. Department of Labor to expand the agency’s fight against fraud by “pursuing bad actors and recovering federal and state money stolen from taxpayers,” the agency said.

The employees join the agency's Fraud and Investigations Division team. The majority of their time will be spent reviewing claims filed by impostors — nearly all from May and June 2020 — where no payments were issued.

To clear those cases, staff must manually process the claims to remove them from the UIA’s computer system, the agency said. The agency is replacing its decade-old unemployment benefits system, and a new Deloitte system is expected to be fully operational in 2025.

Meanwhile, still other claimants were told they were eligible for benefits in the pandemic but have received only a portion of the money they’re owed, if anything at all. They are still fighting for benefits they’re owed.

This is the fifth and final state audit of the agency over its performance in the pandemic. The most recent audit, released about a year ago, found the agency improperly granted overpayment waivers to some claimants who were told they were overpaid benefits in the pandemic while not considering others who met the waiver criteria.

The audit estimated the agency may have improperly granted $1.7 billion in overpayment waivers but didn't consider waivers for claims totaling $280.7 million that met its criteria.

Contact Dave Boucher: dboucher@freepress.com or on X, previously called Twitter, @Dave_Boucher1.

Contact Adrienne Roberts: amroberts@freepress.com.

This article originally appeared on Detroit Free Press: Audit: Michigan paid millions in unemployment to incarcerated, dead