News Story

Unemployment agency undercalculated penalties for fraud

Virtually no attempts to recover payments

A state office charged with investigating fraud in Michigan’s unemployment insurance program had some significant failures over a recent 20-month period, according to a report by the Office of the Auditor General.

Anyone who commits unemployment insurance fraud is subject to penalties, but the audit found that at least half the time (49.4%), the Unemployment Insurance Agency undercalculated the penalties. It may have thus missed the opportunity to assess another $840 million in penalties, auditors found. Further, they said, the agency either did not assess or inaccurately assessed penalties on 84% of a sample of 25 cases of misrepresentation. Auditors said the agency had not correctly programmed its fraud detection software, which it relies on extensively. The agency plans to replace that software, dubbed MiDAS, sometime next year.

The audit looked at the investigations division of the Unemployment Insurance Agency within the Department of Labor and Economic Opportunity. Fraud comes in several forms, including claimants who impersonate someone else; agency contractors or staffers who act fraudulently; and claimants who intentionally misstate or withhold relevant information to obtain benefits.

Of the samples pulled by the auditors, investigators did not attempt to identify who submitted fraudulent claims 70% of the time, and they did not attempt to recover payment or penalties 96.7% of the time.

The state’s unemployment agency did not refer 90% of sampled fraudulent claims to law enforcement.

CapCon asked the Department of Labor and Economic Opportunity to comment on the findings. “Here’s a news release we issued at the time of the audit’s release last December,” Nick Assendelft, communications manager, said in an emailed response.

Between Jan. 1, 2020, and Dec. 8, 2022, the unemployment agency recorded 300,000 cases of fraud referral, closing 99.9% of them after a manual review by Dec. 8, 2022. It also recorded 2.1 million cases of fraud investigations, closing most of them (72.7%) by the same date, due in part to rules established in MiDAS.

As of Dec. 8, 2022, the report found, the agency “had not made (claims) payments related to nearly 80% of the approximately 800,000 open fraud investigation cases.”

The Office of the Auditor General has now completed five reports on how the unemployment agency handled claims during and after the COVID-19 pandemic. Previous audits covered the unemployment agency’s work in the following areas: establishing eligibility criteria; managing personnel; processing claims; and assessing information technology controls.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.