Broken: The human toll of Michigan's unemployment fraud saga

A few days after a federal judge issued a Jan. 11 order commanding the state to “suspend all collection activity” against thousands of Michigan workers tagged with unemployment fraud, Jason Doss checked his bank account.

It was business as usual.

Michigan's Unemployment Insurance Agency, as it has for nearly two years, was still taking one fourth of his Ford Motor Co. paycheck citing unemployment fraud. It seized $212.57 on Jan. 17. It took $196.91 the following week. It claimed yet another $196.36 last week, on Feb. 3 -- a day after the state settled a federal lawsuit by agreeing to sweeping reforms of the agency’s error-filled fraud identification system.

To date, UIA has taken more than $14,000 from Doss' checks. And the settlement notwithstanding, the agency says he still owes nearly $70,000, which includes a penalty of more than $62,000 and over $7,000 in interest. Doss is among a flood of workers who insist they were incorrectly accused of fraud by a rogue state computer, never told the precise nature of what they had done wrong, and were never given a chance to defend their actions before their paychecks were garnished. An internal state review of more than 20,000 fraud claims showed a 93 percent computer error rate.

Doss, 37, a soft-spoken suburban Detroit resident who keeps meticulous records of every penny the state has taken, tries to curtail his rage every time he looks at the money taken from his checks.

“If I dwell on it, I could go crazy. It's like being robbed,” Doss said, seated at his dining room table, scanning a printout of every check the state has taken.

“If I dwell on it, I could go crazy. It's like being robbed.” -- Jason Doss, a Detroit-area worker who said he was wrongly accused of fraud

Doss is one of four Michigan workers ensnared in the state’s unemployment benefits fraud debacle who agreed to talk to Bridge Magazine about the toll it has taken on their lives. A suburban Detroit woman declared bankruptcy. An Eaton County resident fell behind in his bills. A Washtenaw County electrician recounted his wife crying before Christmas after he was told he owed the state $13,000.

Doss said he has a bit more hope he might finally win back his money following last week’s announced settlement of a federal  lawsuit that accused the unemployment agency of saddling thousands of workers with bogus fraud charges, cases UIA says it’s now willing to review and, if warranted, reverse.  

But even that announcement would not end the anxiety felt by workers unfairly targeted. In a bizarre coda to the computer saga, the state reported Friday that a software glitch may have allowed some users of the Michigan Integrated Data Automated System -- or MiDAS -- to access the names and Social Security numbers of nearly 1.9 million workers whose payroll was processed by third-party vendors. That's nearly 40 percent of the state workforce.

UIA spokesman Dave Murray said the data breach and the UIA fraud mess, both tied to Colorado-based firm Fast Enterprises, are “very, very different issues.”

“Our No. 1 focus at the UIA is serving Michigan residents,” he said.

The federal lawsuit settlement binds UIA to an earlier agreement that the state would review each fraud case generated by the computer -- impacting some 40,000 workers -- and ensure workers get appropriate notice of the accusations and an opportunity to respond before the state starts collection efforts.  

The deal also ends the state’s heavily criticized practice of “income spreading,” in which claimants' occasional work earnings were treated by the computer system as having been earned across an entire quarter. Attorneys say the practice led the state to falsely conclude some workers were illegally getting paychecks during periods when they were also collecting unemployment insurance.  

For its part, the state agency is now acknowledging the potential scope of the damage. An agency internal review in December found that nearly 21,000 workers – 93 percent of the cases reviewed – had been falsely accused of fraud over a 22-month period.

David Blanchard, lead attorney for the lawsuit, said he is “heartened by new leadership who finally acknowledge the problem and recognize that this settlement is this first step, but not the last step, of essential reform to the UIA.”

“We’re glad to bring this matter to a close,” said Wanda M. Stokes, director of the Talent Investment Agency, which oversees the UIA, in a statement after the suit was settled. Stokes, named to the post last July, recently told the Associated Press she was angered by the agency’s failures and that damage done to workers “shouldn’t have happened.”

Royal Oak attorney Jennifer Lord, who leads a separate lawsuit seeking class-action status in state court against UIA, called the agreement “an important and positive first step forward.” That lawsuit seeks recovery of garnished wages, penalties and interest as well as other monetary damage caused by false fraud findings.

But Lord said there remain “many outstanding issues,” including ongoing garnishments of workers’ paychecks, like those cited by Doss, and the state's failure to account for money that may have been wrongly seized from workers in 2016.

“Government by spreadsheet does not work,” Lord said.  

For Jason Doss, the cuts into his paycheck continue. The federal court order from January halting fraud collections gave the state 45 days to comply. So Doss continues to check his bank account every week to see when his garnishment might finally end.

Even today, Doss said he remains at a loss about what he is accused of doing wrong.

Doss said he learned he was being penalized for fraud only after he discovered that first garnished check in March 2015. The garnishment appears to be for unemployment payments he received relating to a manufacturing job six years ago – payments that he had already litigated against UIA before a (live, not computer) administrative law judge and won on appeal.

“I looked online and it said: 'Your wages are subject to garnishment by the Unemployment Insurance Agency Plaintiff Benefit Enforcement Unit.' It said I owed $84,000.

“I thought, 'There must be a mistake. They will fix it.'”

“You really feel like a victim. They go after the working people and that isn't right.” -- Sterling Heights resident Nancy DeRocco

Doss said he had closed out his UIA account years ago after returning to work, so he would have missed any notice of fraud posted there. He said he got no notice through the mail, even though he updated his address each time he moved.

“I called five or 10 times before I got through. Then I was on hold for 45 minutes. They transferred me three times. All they could tell me was, 'You owe $84,000,'” he said.

Doss and his wife, Syretta, 33, are expecting their first child in August. He scratches to make mortgage payments, grateful that his mortgage loan allows him an extra 15 days each month before he's considered delinquent. He said the $14,000 in pay that was diverted to the state has left him behind in putting money away for the future.

“You want to provide for your family and your child and right now I really can't do that. It's put a toll on my life and marriage.”

At the center of the controversy is the $47-million MiDAS computer system the state installed in 2013 to streamline unemployment fraud detection. That was a year after after UIA laid off 400 full- and part-time employees - a third of its workforce. In essence, the computer system and its algorithms replaced human beings, presiding as judge and jury over tens of thousands of unemployment cases.

As the system’s errors emerged, the agency’s decision to automate the fraud detection process has cast MiDAS as another example of Gov. Rick Snyder's efforts to make government more efficient having gone horribly wrong. UIA itself boasted in 2014 that the system “is now more responsive and efficient with its customers, thus, creating a greater sense of service-level trust.”

While undeniably more efficient, the computer and the state agency that ran it by all accounts appear to have been singularly unresponsive to the tsunami of complaints and desperate phone calls that poured into UIA after fraud notifications or collections went out to bewildered workers across Michigan.

According to the state lawsuit, a training guide for the new computer system noted its unchecked authority to determine fraud: “Regardless of the manner in which the information is gathered,  maintained, or processed, all UI functions are ultimately performed by MiDAS.”

Michigan’s unemployment system, which pays out $1.7-billion in benefits a year, is funded by taxes on employers for workers who are laid off and meet state standards for length of employment and earnings.

Thanks to MiDAS, fraud cases soared, more than tripling, from 7,164 in 2013 to 23,385 in 2014 and 25,472 in 2015.

While the agency promised a “greater sense of service-level trust,” complaints streamed into unemployment lawyers not long after the system went live, as claimants said they never heard from the agency before they got notice that they owed the state tens of thousands of dollars.

Critics draw parallels to the Flint water crisis, where residents protested discolored and foul-tasting water for more than a year before the state took action to combat dangerously high lead levels in the drinking water. In this case, UIA ignored complaints for months from thousands of people filing unemployment claims who were hit by findings of fraud.

“I do see some similarities with Flint,” said Steve Gray, a University of Michigan assistant law professor and an expert in unemployment procedure and law.

“I had unnamed agents (within UIA) telling me back in 2014 there is a problem with the computer making these decisions. They weren't getting anywhere inside the agency.”

In 2015, Gray co-wrote a letter to the U.S. Department of Labor voicing concern that that MiDAS was subjecting “significant numbers of innocent claimants to unjust fraud charges.”

Making matters worse, the workers say, is that Michigan's penalties for unemployment fraud are the harshest in the country. UIA typically assesses a penalty of four times the principal owed, on top of interest charges. No other state imposes such a stiff penalty.

Because the state used MiDAS to review cases as far back as 2007, many workers say they had no reason to believe the state was raising questions about benefits paid years earlier. According to the state lawsuit, the state’s initial finding of potential fraud was often posted to claimants' UIA web accounts long after their benefits expired – and therefore long after they had reason to check their account.

Under MiDAS, lawyers for the workers say, innocent misstatements on claim forms were treated like intentional deception. Lord noted, for instance, that one form filled out by claimants asked them why thought they were entitled to benefits. One of the seven options was: “I needed the money.” According to Lord, those who checked that box were automatically slotted as fraudulent.

According to Gray, the UM professor, any discrepancy between an employer and worker regarding earning amounts, earning dates and whether a worker quit, was fired or was laid off, could prompt MiDAS to issue a fraud finding, even absent deliberate deception.

Gray said that claimants receiving a fraud notice typically had no idea what they allegedly did wrong, making it impossible for them to defend the payments. The notice simply stated their “overpayment”-- the amount in benefits for which UIA says they were not entitled, their penalty, interest and balance due. They would get the same, unspecific answer if they reached out to UIA staffers.

It was like falling into a bureaucratic black hole.

Seated at a kitchen table in his rural home some 50 miles south of Lansing, Robert Nevins, 37, said he was unaware UIA pegged him for fraud until he checked his bank account one day last year.

Nevins, who operates heavy equipment for the city of Lansing, deposits his check automatically into three accounts, one of them a rainy day fund he only checks a couple times a year. UIA had already taken $4,000 from that account and it was knocking down his biweekly take-home pay from $1,000 to about $650. He found out the agency wanted more than $21,000.

“That's a big chunk of money,” he said.

Like many others, Nevins said he had no clue what this was about. A construction worker by trade, Nevins estimated he has applied for unemployment a dozen times over the years, as construction workers are often laid off from fall until spring.

“I have never had a problem with it before,” Nevins said.

He said he never even considered cheating the system. “I could do work under the table, like snowplowing, but I don't want to mess it up so I don't do that,” he said.

Nevins got in touch with Blanchard, the Ann Arbor-based lawyer and lead attorney for the 2015 federal lawsuit aimed at halting the state's unemployment fraud initiative.

As he waited for his hearing, Nevins said, his diminished income became a burden. “I fell behind in my bills. If I worked overtime, they were just taking more out of my check.”

A man of few words, Nevins summed up his feelings like this: “Anger, pretty much.”

In December, a Lansing administrative law judge ruled in Nevins' favor and ordered the state to return $6,000 in wage garnishments while wiping out all interest and penalties. While he's grateful Blanchard took his case, it cost him $2,000 in legal fees.

Not surprisingly, the experience, he said, eroded his trust in state government.

As further proof, Nevins pulled from the top of his refrigerator a letter from UIA he said he received just before his hearing. It was mailed to his address but it had a different individual's name at the top and an employer Nevins said he never heard of. It was another fraud finding.

“It makes you wonder what is going on,” he said. “It's very shady.” .

By the fall of 2015, things reached a breaking point for Sterling Heights resident Nancy DeRocco.

A couple months earlier, the state began taking a quarter of DeRocco's paycheck from her job at a credit card processing company. UIA – after determining she committed unemployment fraud – had already taken more than $2,000 from her state and federal income tax refunds.

It said she owed more than $14,000 in principal, interest and penalties.

As she struggled to pay her bills, DeRocco applied for a hardship waiver.

UIA responded: “Your request for a waiver of repayment of overpayment accounts due to financial hardship has been reviewed and indicates your overpayment account was established due to fraud, and therefore cannot be waived.”

At that point, DeRocco, 44, said she felt she had no choice but to turn to bankruptcy.

“I was barely making it. The garnishment put me right over the edge,” DeRocco said.

She filed for bankruptcy in October 2015 and got what could be considered a break – in February 2016, the court knocked down her balance of $11,933.57 to just over $3,300 and ordered her to send $200 a month to UIA. Thus far, she has paid $2,600.

DeRocco said she still has no idea what she did wrong. DeRocco showed a visitor a thicket of UIA communications on her UIA web portal that she said she never saw before she learned UIA found her guilty of fraud. She said she discovered that only after finding out her state and federal taxes were being seized.

UIA documents show DeRocco's fraud finding stems from UIA's conclusion she was overpaid about $3,000 in benefits in 2012 – a finding that ballooned to more than $14,000 with interest and penalties.

“I couldn't understand who the heck was taking my taxes,” she said.

Lord, the Royal Oak lawyer, said it can be difficult even for lawyers to discern the basis for agency fraud findings. “We are still scratching our heads trying to figure out how she was flagged with fraud,” Lord said of DeRocco.

“There is absolutely no evidence that she intentionally deceived anyone. She was certainly never told what, if anything, the agency claimed that she did wrong. It is fundamentally unfair to accuse someone like Ms. DeRocco of something as serious as fraud without an iota of factual support.”

In 2016, DeRocco contacted Lord’s law firm, hopeful she might recover some of the $5,420 she has lost to the state thus far. But if the state suit  prevails, DeRocco may not be able to recoup the $3,300 she is ordered to pay through her bankruptcy because those could be considered voluntary payments.

“You really feel like a victim,” DeRocco said. “They go after the working people and that isn't right.”

Not long before Christmas 2014, union electrician Kevin Grifka opened a letter from Michigan's UIA. It said the Washtenaw County resident was guilty of unemployment fraud and owed nearly $13,000. It was, he said, the first he heard of any problems.

“We had just bought presents for the kids and we were wondering, 'Do we have to take it all back?' You see your wife crying before Christmas and it's tough,” Grifka, 39, recalled.

Grifka was sure he had done nothing wrong, so he set out to remedy things. He had been laid off in February 2014, collected benefits for a few months and then returned to work. “I had all my pay stubs, the layoff notice from my union that showed no gross earnings from the time I was off. I had all the proof.”

He said he went to the UIA office in Lansing three times, speaking to three different staffers. All his documentation did no good.

“They said, 'You got to fill out this paperwork. They might look at it,'” Grifka recalled.

Grifka said he was sufficiently angry to call Gov. Rick Snyder’s office and asked to speak with the governor.

“You don't get very far with that. They said that's not going to happen. They say, “Here's a phone number to the unemployment agency and outside of that you are on your own.”

Asked about Grifka’s account, Snyder spokesman Ari Adler said: “When constituents call in seeking help with a problem, our first priority is to find the best way to get them the help they need. In a case like this one, that would mean transferring the call to a UIA representative who is assigned to specifically help the Governor’s Office when calls come in.”

In 2015, according to Grifka, the state seized his entire 2014 federal tax return of about $8,500. He, too, turned to Blanchard.

According to the federal suit, Grifka was a classic example of the MiDAS system’s arbitrary – and faulty – computer algorithms. The suit states Grifka earned $9,407.13 during the time before his layoff and received no work earnings the rest of the 13-week quarter. But the suit stated the computer took the amount he earned while working and then wrongly allocated that pay over the entire quarter -- so-called “income spreading.”  

“If any human being had looked at his file at any time during this process, they could easily have seen their error and corrected it,” the suit stated.

Grifka was out of the state in the summer of 2015 when he got a call from his sister.

“She said, 'There are six or seven checks here,'” Grifka said. The state had caved, he said, returning everything they claimed he owed.

Grifka said he expected better from government. Among other things, he still resents the treatment he said he received the day he called Snyder's office. “You are not just the governor,” he said, “you are my employee.”