by Scott McClallen
The Unemployment Insurance Agency (UIA) failed to screen 5,508 workers before giving them access to software that disbursed $39 billion of taxpayer money since March 2020.
An audit released Friday from the Office of Auditor (OAG) General Doug Ringler marked four “material conditions” – the most severe rating – asserting the UIA failed to take multiple safeguards to prevent employees from looting taxpayer money.
The UIA has fired or penalized at least 18 employees so far after a criminal investigation. The audit explains why. Of 139 departed workers, 63, or 45.3%, continued to have access to Michigan’s Integrated Data Automated System (MiDAS) to view and make unauthorized claims for an average of 32.6 days post-departure.
This access cost taxpayers $3.8 million in fraud committed by a former worker who pleaded guilty to fraud in July 2020. If that scheme was successful, it would have netted more than $12 million.
The audit says the UIA and the Department of Labor and Economic Opportunity (LEO) might have “inappropriately released a staffing agency from liability for a $3.8 million in UI fraud.”
The audit found that staffing agencies and Michigan Works! Agencies (MWAs) employed 169 workers with one or more misdemeanors and/or felonies of which 47 workers had one or more felony convictions, which included embezzlement, illegal sale and use of financial transaction devices, identify theft, and armed robbery. As of Dec. 31, 2020, 71 people with similar criminal records were working for the UIA, the audit says.
Moreover, the UIA didn’t execute data sharing agreements in a timely manner with three staffing agencies and 16 MWAs or ensure completion of confidentiality agreements by two staffing agencies and MWAs.
The audit “identified 21 (52.5%) workers who reportedly worked between 2 and 329 hours or an average of 47 hours before completing their initial training,” the audit found.”
When Gov. Gretchen Whitmer shuttered much of the economy in 2020 trying to slow the spread of COVID-19, the UIA wasn’t ready to handle the caseload of Michiganders, much less international fraudsters who targeted the state’s aging security systems. Michigan’s unemployment rate spiked to 22.7%.
In spring 2020, Michiganders out of work and fraudsters filed a peak exceeding 388,000 claims in one week – 77 times more than an average pre-pandemic week – overwhelming the system. The Unemployment Insurance Agency (UIA) approved a majority of the claims, including many of the fraudulent ones.
Lawmakers also infused the UIA with millions more dollars to fight fraud and quickly provide benefits to eligible Michiganders. But in November 2020, amid record caseloads, then-UIA Director Steve Gray took a secret $85,872 severance deal and a confidentiality agreement. Both the deal and agreement eventually became public knowledge.
Meanwhile, some Michiganders said they had waited on benefits for longer than eight months.
From March 2020 through June 2021, the UIA workforce increased from 754 to a monthly high of 4,410 in April 2021, spending $171.7 million for extra staff and processing 5.2 million claims.
The UIA’s new director, Julie Dale, has promised change.
The UIA “agree[d] in part” with the audit.
“LEO/UIA acknowledges that some mistakes were made while expediting the execution of contracts that were urgently needed to protect the health, safety, and welfare of Michigan’s citizens during the COVID-19 pandemic; and we agree that some process improvements are needed going forward,” the agency said in response to the audit.
An independent audit estimated the UIA lost $8.5 billion in unemployment fraud. A separate fraud expert group estimates it closer to $11 billion.
Rep. Steve Johnson, R-Wayland, said he’s “not surprised one bit” by the audit’s findings, and said he has “no faith” anything will change, barring drastic changes.
“At the end of the day, it’s Gov. Whitmer’s administration,” Johnson said in a phone interview. “She needs to step up and fix this. This has continued to plague her administration, and we’re not seeing any progress forward.”
The Chair of the House Oversight Committee, Johnson said he plans to hold hearings about this audit.
The UIA’s software gave criminals access to Michiganders’ names, Social Security numbers, and dates of birth.
“I don’t know what more you can ask for, as someone who wants to commit identity theft,” Johnson said. “You’ve got all the information right at your fingertips. We’re not asking the department to try to foresee the future and to see if any employee there might have the ability in the future to do something. No, just look at their past.”
– – –
Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi.
