Michigan unemployment agency wasn't effective in processing pandemic claims, audit shows

A new state audit released Friday found Michigan's Unemployment Insurance Agency wasn't effective in processing unemployment insurance claims during the pandemic and improperly granted overpayment waivers to some claimants while not considering others that met the waiver criteria, one of several other findings related to the way the agency distributed benefits and handled overpayment waivers in the months that followed.

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 waiver criteria.

The 126-page audit, the Office of the Michigan Auditor General's most comprehensive audit on the unemployment agency's performance in the pandemic to date, found issues with the way the agency communicated with claimants and detailed several problems with the way the UIA processed regular jobless claims, set up federal programs and granted waivers for overpayments.

Some of the new findings:

• The agency did not investigate potentially misleading or inaccurate information provided by Pandemic Unemployment Assistance claimants to identify benefit overpayments or determine when overpayments resulted from intentional misrepresentation by the claimant.

• The UIA did not require some PUA claimants to certify they met federal eligibility criteria for those benefits and, therefore, the UIA could not support the appropriateness of PUA payments of $10.2 billion.

• The UIA should improve its administration of PUA requalification, recertification and overpayment waiver processes.

• The agency didn't require 314,000 known PUA claimants with no identifiable wages or recent income tax records to provide additional information to demonstrate they had a previous attachment to the workforce and were unemployed because of the COVID-19 pandemic. The agency paid these claimants more than $4.9 billion in benefits.

• The UIA did not maintain claimants' originally completed PUA applications when it revised its PUA application forms. Thus, it appears in the state's online unemployment insurance system that claimants had not followed the agency's instructions at the time they submitted income information.

• The UIA did not consistently require that regular unemployment insurance claimants certify they were able and available for full-time work.

Many of the findings in the audit stem from issues related to the agency's mission at the beginning of the pandemic of getting benefits out the door to as many claimants as quickly as possible. Under the then-director Steve Gray's leadership, investigations division staff were temporarily reassigned and rules were removed from the agency's automated fraud detection system.

While this allowed for more staff to assist with claims processing and more expedient payments to claimants, the audit found, it "significantly diminished UIA's ability to help ensure unemployment insurance program integrity."

On top of that, changing federal guidance and the agency's inclusion of qualifying questions that were not authorized by the U.S. Department of Labor led to confusion over who was eligible for benefits, issues that the agency is still dealing with the fallout from today.

For example, the audit found the unauthorized qualifying questions the agency included directly impacted over 25% of all unemployment insurance benefits paid out from the start of the pandemic to the summer of 2022.

The agency began the waiver process for overpayments it caused by using unauthorized criteria in June 2021, asking nearly 650,000 PUA claimants to requalify and/or recertify for benefits, using the specific federal criteria only. Generally speaking, the audit found that the claimants granted these waivers were PUA claimants who did not respond to UIA's request or responded to the requests without selecting an eligible reason and did not have a previously identified overpayment associated with their specific claims.

Julia Dale, the director of the UIA who took over in October 2021, said in a letter dated Dec. 14 to Michigan Auditor General Doug Ringler, that the audit, which she received in advance, "misses the mark" in two respects: "It ignores the reforms the agency has made to resolve them and lacks the context behind what caused these problems."

In an interview with the Detroit Free Press in mid-December before the audit was released, Dale said the "issues that are being addressed here (in the yet-to-be-public audit), frankly, have been addressed and addressed again, and addressed yet again, and it's a rehashing of old news."

Michigan House Republican Leader Matt Hall, R-Richland Township, said in an emailed statement that oversight of the agency is now "more crucial than ever."

"When the people of Michigan were struggling, the unemployment agency failed jobless workers who really needed help, cut corners and wasted billions of taxpayer dollars to fraud and mistake," Hall said.

This is the fourth audit of the UIA in just over a year about its performance in the pandemic, when the agency, alongside others across the country, rushed to get out benefits to laid-off workers and implement new federal jobless programs amid changing guidance.

The first, released in November 2021, found the agency "wasn't effective" in its implementation of the federal PUA program — which expanded benefits to cover freelancers and contract workers, for example, who typically wouldn't qualify for regular benefits — and included four eligibility criteria that were not authorized by the U.S. Department of Labor.

An audit released a few months later found the agency routinely gave people previously convicted of fraud, embezzlement and similar financial crimes access to sensitive information that, in at least one case, was later used to steal public money. Most recently, an audit released in May echoed the findings from the prior audit. It said the UIA didn't limit access to sensitive information for certain employees and failed to conduct proper background checks for temporary workers.

Dale said in December that more than a third of the findings in this audit have already been raised in prior audits. She said the time she and UIA staff have spent working over the last 19 months with auditor staff to address previously discovered issues "takes away from our efforts and energy to continue to improve and reform the agency, pay out claims and serve Michigan workers."

Dale said when she saw the report, she was "disappointed."

"I felt as though they had disregarded the conversations we've had in the past, the information that we have provided them about the course corrections we've made, the improvements we've made and the matters that we've already answered to in prior audits," she said.

Some of those "course corrections" include:

• Selecting Deloitte to replace its decade-old unemployment benefits system. The new system is expected to be fully operational in 2025.

• Implementing a "zero-tolerance policy" on fraud: Dale’s letter said there have been 109 search warrants executed, 90 people charged, 94 pending cases, and another 28 who have pleaded and 15 who were sentenced.

• Meeting with several businesses and claimants to see how they "interact with the agency, what the needs and expectations are and how we can best meet their needs."

Michigan employers are looking to hire despite inflation and economic uncertainty

Michigan unemployment agency to pause collection activities for all pandemic overpayments

The state auditor is working on another audit of the UIA regarding fraud.

Contact Adrienne Roberts: amroberts@freepress.com.

This article originally appeared on Detroit Free Press: Audit: Michigan UIA wasn't effective in processing pandemic claims