LANSING, Mich.—A state official who is conducting a wide-ranging review of Michigan’s embattled unemployment benefits office apologized for the fiasco that led at least 20,000 people to be falsely accused of defrauding a system that provides the jobless with temporary financial assistance.
Talent Investment Agency Director Wanda Stokes, whose agency includes the state Unemployment Insurance Agency, added that lawmakers should consider reducing what she said are the country’s highest financial penalties for unemployment fraud.
“I really feel horrible about this whole situation,” she told The Associated Press in an interview Friday. “At the most vulnerable and stressful time in their life, they are now being accused of fraud. … I understand that they’re angry and I’m angry, too. It shouldn’t have happened.”
Stokes, who took charge of the umbrella agency that oversees the unemployment office in July, said Republican Gov. Rick Snyder appointed her to “assess the situation and then fix it.”
The state is reviewing about 50,000 cases from a nearly two-year period that cover roughly 40,000 people who were determined to have committed fraud—either solely by an automated computer system or by a mix of the software and some level of staff involvement. That typically means they were flagged for receiving “overpayments” to which they had not been entitled.
In many cases between October 2013 and August 2015, however, they did not commit fraud and — to compound being forced to pay restitution—were hit with interest along with penalties equaling two or four times the overpayment. Their wages and income tax refunds were garnished. Lawyers for people suing the state say some suffered worse credit ratings, job prospects and consequences from not being able to spend money they needed.
On Jan. 11, U.S. District Judge Robert Cleland approved an agreement by which the state is halting all collection activities against people who were subject to fraud determinations in the period in question, “unless and until individually reviewed by agency staff and affirmed with new notice to claimant.” The state must comply by late February.
Separately, the Michigan Court of Appeals is expected to soon schedule arguments in a 2015 class-action lawsuit that seeks economic damages.
“People have suffered greatly in addition to the financial losses that they’ve experienced. I think it’s only just that they receive some compensation from the state for the stress and the strain,” said Jennifer Lord, a Royal Oak-based attorney representing the plaintiffs in state court.
The state started using the Michigan Integrated Data Automated System (MiDAS) in 2013. The “robo-” or “auto-adjudication” system issued fraud determinations based on discrepancies in reported earnings, hours worked and other information.
The problem, Lord said, is three-fold.
The state rushed the implementation of a “fatally” designed computer program, which led to improper fraud claims. And a faulty notification process ensured many people were unaware of alleged discrepancies and unable to respond quickly before determinations were finalized, she said. For instance, questions were sent to online accounts for claimants who no longer were getting benefits and had no reason to check.
“I want them to know that we apologize for this situation and that we are looking at now going forward with a system that works for them and one that they can trust in the future,” said Stokes, who previously held top roles at the Michigan Department of Licensing and Regulatory Affairs, the state attorney general’s office and in the private sector. She reassigned the director of the Unemployment Insurance Agency more than three weeks ago.
Stokes said the agency cannot “unilaterally” lower 400 percent penalties that are codified in law, but she plans to talk to legislators about more “reasonable” penalties. While she did not specify an amount, she said penalties should be designed to encourage compliance and “shouldn’t be too harsh.”
A review of unemployment fraud cases made public in December found an error rate of 93 percent for about 22,000 cases in which determinations were solely made by the computer system between 2013 and 2015. The state now is reviewing 28,000 other cases from that time that were handled by the computers and staff.
A new law prevents the agency from adjudicating a claimant’s case as fraud without human verification and reduces the statute of limitations so it can pursue fraud three years back instead of six. But legislators plan to propose more bills in the new two-year session as needed.
Senate Minority Leader Jim Ananich, a Flint Democrat, wants to create a fund so people are paid back and to address a potential statute of limitations issue—which may be resolved in court—for people who were flagged for fraud involving benefits they had gotten years ago.
“This was something the government did wrong, and the citizens didn’t, so we’ve got to solve it,” he said.
Ann Arbor-based lawyer David Blanchard, who represents individuals in the federal case whose plaintiffs also include the United Auto Workers union and the Sugar Law Center in Detroit, said he is hopeful after the state agreed to stop collections.
“It’s sad that it’s taken so long. But it’s good that it’s finally gotten to the point where it’s impossible to deny that the system is broke and that it needs to be fixed,” he said. “That was not the first response from the state.”