Michigan freezes 340k unemployment accounts amid fraud probe and pandemic

June 19: Michigan may have lost millions to over 100,000 fake unemployment claims
June 12: 400K unemployment claims now flagged in Michigan fraud investigation
June 10: Frustrations rise over 340K frozen jobless claims, Michigan’s lack of answers

LANSING — The state of Michigan has frozen 340,000 unemployment accounts, blocking cash assistance for jobless residents while it investigates suspected fraud by imposters seeking to take advantage of enhanced benefits during the COVID-19 pandemic, officials said Friday. 

The state has already identified a “significant amount of fraud” in new applications, according to Jeff Donofrio, director of the Department of Labor and Economic Opportunity. 

But “stop orders” issued by the state could impact residents who legitimately qualified for benefits, some of whom have spent weeks or even months trying to navigate an unemployment system overwhelmed by record claim volumes.

“Unfortunately, because of this criminal activity, some of those folks are experiencing additional delays,” Donofrio acknowledged, calling unemployment fraud an emerging national issue.  

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“We know a large number of people who were swept up to this were eligible, and we don’t want to harm them. We want to get them into benefits. We’re just taking the cautious approach here, working with law enforcement, working with fraud experts on this.”

The 340,000 frozen accounts had been “active,” meaning the state had already made payments through debit cards. Officials are asking claimants to log into an online system, verify their identity and provide additional documentation to prove they are eligible, Donofrio said. 

The Unemployment Insurance Agency has 600 staffers reviewing those claims and is also using data analytics to “evaluate if there are large groups of people that we could batch back in and move back into payment,” he said. “We’re working on this as quickly as we can.”

Michigan is not the only state battling a new wave of unemployment insurance fraud, complicating efforts to speed up payments to residents who lost jobs because of the coronavirus and forced business closures. 

States “across the country” have been hit by fraudsters, according to the Wall Street Journal, which reported Wednesday on identity theft investigations in North Dakota, Maine and Pennsylvania. 

“Every state is now experiencing this, and it is just sickening that these criminals would would put us in the situation,” Donofrio said Friday.

Attorney General Dana Nessel on Friday also announced the creation of a task force that will help investigate and prosecute fraud in the unemployment insurance program in coordination with the Michigan State Police, U.S. Department of Labor and state agencies.

“To steal money from this program intended to support households during a major global crisis is beyond reprehensible,” Nessel said in a statement. 

Unemployment insurance fraud is a particularly fraught topic in Michigan, where tens of thousands of residents were falsely accused of fraud by a faulty computer system between October 2013 and August 2015. 

Michigan eventually paid out $21 million in refunds, but attorneys in an ongoing class action lawsuit are seeking larger damages from the state for falsely accused residents who had their income taxes or wages seized by the government, causing additional financial hardship. 

The state now requires humans to review any computer-based fraud determinations, but the recent rounds of stop orders are “increasing the level of desperation tenfold” among legitimate claimants who lost their jobs during the pandemic, said employment attorney Jennifer Lord. 

Concerned residents have been calling her law firm, which is representing plaintiffs in the false fraud lawsuit, to complain about recent delays, Lord told Bridge.

“I got an email from someone who was paid until May, and then all of a sudden they got this stop payment order, and they can’t communicate [with anyone at the UIA] because you can email 100 times or you could be on the phone for seven hours a day and five days in a row and people still aren’t picking up the phones,” she said.

Lord is providing jobless claimants what she called “the most satisfying advice that you can imagine: Keep trying. Contact the agency at odd hours. Don’t give up.”

The Michigan Unemployment Insurance Agency has so far paid claims to roughly 1.7 million unemployed or partially unemployed residents since mid-March, Donofrio said.  It has received about 2.2 million total applications and is “evaluation which of those are eligible to move onto benefits,” he said.

In an afternoon video press conference, Donofrio told reporters the state’s computer system typically flags suspected fraud but then a human reviews it before an account is frozen.

“We are very sensitive to fraud in this state given our history, and we want to make sure that we are acting appropriately, and that's why we're taking these steps,” Donforio said, noting Michgian is also working with a third-party forensic auditing firm to help it determine what is fraudulent and what is not. 

“We want to make sure we protect the people of Michigan and also make sure that we're moving people into benefits as quickly as possible,” he said. 

Donofrio declined to say how many cases of unemployment fraud the state has so far confirmed. 

“We're trying not to reveal too much of our tactics,” he said during the video press conference. “We know criminals are likely watching right now, and every time we talk about the tactics that we're using and how we're going about this, they alter this. It's like whack a mole.”