Michigan unemployment system designed to slow payments working all too well

July 13, 2021: Michigan changed unemployment rules. Now 648,000 may have to repay benefits
June 24, 2021: Michigan unemployment agency resumes in-person office visits

LANSING —  Michigan’s failure to promptly pay benefits to thousands of residents who lost their jobs during the coronavirus pandemic is driven in part by a computer system that state officials have known for years is faulty but failed to fix.

As Michigan’s economy collapsed in March, the state’s unemployment website crashed, phone lines clogged and a controversial computer system flagged one-third of all claims for fraud, 540,000 of 1.7 million.

That froze payments for weeks or months to jobless residents like Tonya Bosman, who said she tried to upload identity verification documents more than 30 times to prove she didn’t commit fraud.

“It was a nightmare,” said Bosman of Detroit, who lost her job as a server and had to ask for a rent extension after the state placed a “stop payment” order on her account. “My landlord just had to deal with it. I told him I had no control of my money.”

​Unemployment agencies across the country have been overwhelmed by record claims and targeted by international fraud rings in recent months, but in Michigan, the pandemic has exposed longstanding issues the state could have fixed earlier, according to court records, federal data and expert interviews by Bridge Michigan and its reporting partner, Outlier Media. 

A big source of the problem, according to experts: The $52 million Michigan Integrated Data Automated System, known as MiDAS, a computer system designed to save money by flagging fraud, taking human review out of the unemployment claims process and using algorithms to identify “non-monetary issues” that end up delaying or invalidating claims.

“MiDAS was programmed to assume people were guilty, and because of that programming, when it’s needed, people aren’t getting their benefits,” said Tony Paris, an attorney for the Sugar Law Center in Detroit that has sued Michigan over its unemployment system.

The state and its vendors have refused to disclose those algorithms, but court records and legislative testimony show that as recently as March 10, a claimant who made a mistake during filing could be accused of fraud for choosing from a multiple choice menu a seemingly innocuous explanation when seeking unemployment benefits: “I needed the money.”

Other possibly innocent flags the state has used include addresses that are close together geographically or groups of applicants with similar birthdays, according to contracts and court documents. 

The system also routinely flags claims by parents who cannot work while staying home with kids during the pandemic, and once claims are delayed by automated notifications for a “non-monetary issue” or “additional claim required,” they can often only be resolved by phoning an agency that is already overwhelmed, said Rachael Kohl, director of the Workers’ Rights Clinic at the University of Michigan. 

Many of the issues were painfully known to state officials before the pandemic and the MiDAS system has been a source of controversy for years. It is the subject of several lawsuits for falsely accusing tens of thousands of residents of unemployment fraud from 2013 to 2015 and then automatically assessed huge fines and penalties.

"MiDAS is the biggest barrier to Michiganders getting benefits — both historically since its implementation in 2013 and right now during COVID-19," Kohl told lawmakers in a June memo.

The system was implemented in 2013 under former Gov. Rick Snyder, two years after he signed laws restricting eligibility for benefits. Since then, the rate of jobless residents who qualify for benefits in Michigan has dropped sharply, falling from 40 percent to 27 percent in 2019, according to federal data. 

Last year, 78 percent of improper benefit denials in Michigan were the result of inadvertent errors made by claimants, the highest rate in the nation.

With new state leadership now in place, the MiDAS system has few if any defenders in the administration of Gov. Gretchen Whitmer, a Democrat.

“You don’t get to that low recipiency rate on accident — that was baked into the system,” said Michigan Unemployment Insurance Agency Director Steve Gray, a former claimant advocate who exposed MiDAS flaws and the false fraud scandal before Whitmer appointed him in June 2019.

“We’ve had to work 24 hours a day, seven days a week at getting all of those roadblocks out of the system,” Gray told Bridge in a phone interview last week. 

False fraud all over again

Felicia Christian knows the system — and its failings — all too well. 

The Canton Township woman was falsely accused of unemployment fraud in 2015 after she lost an assistant teaching job the prior fall. And now, unemployed again because of the pandemic, the state is garnishing her federal benefits to repay a disputed debt she thought was resolved.

“This whole world is a mess, and they’re taking my money in a pandemic? It’s just wrong, it’s dirty and it’s evil,” Christian told Bridge.

Christian had received $2,500 in jobless benefits over three months in late 2014 before the UIA's automated system accused her of fraud and told her she owed the state nearly $100,000 with fines and penalties. 

A relentless writer, Christian spent years defending herself in letters to the agency. Administrative law judges finally heard a series of her appeals in 2018 and 2019 and cleared her of wrongdoing, according to attorneys at the U-M clinic who represent her. 

But when Christian lost her substitute teaching job in March as Whitmer closed schools to stop the spread of coronavirus, she spent more than a month trying to qualify for jobless benefits, pleading with the governor and a state legislator to intervene.

When the UIA finally determined she was eligible in late April, the state began taking nearly $300 out of her benefits every two weeks to satisfy what it claimed was still nearly a $2,600 debt. 

"I was found non-fraudulent, so they really shouldn't be taking anything," Christian said, noting the state also intercepted her $614 tax return in 2017. "I think they're just making stuff up as they go, and I'm tired of it."

The false fraud scandal prompted reforms, including a requirement that human staff now review all accusations of unemployment fraud.

Paris, the attorney, said Christain’s account isn’t atypical and he gets calls every day from people experiencing problems with MiDAS similar to those found years ago.

"My voicemail is going full while [state officials] are saying there is nothing wrong with the system. None of those people see it on the ground level. That is real poetic. It is so frustrating.”

Gray, the unemployment agency director, has acknowledged the state is still dealing with the repercussions of earlier design flaws, including a propensity to over-flag “non-monetary issues” that require eligibility investigations by human staff that can delay or invalidate a claim. 

“To some extent, that system shoots us in the foot,” he told lawmakers in June during one of several public hearings over UIA processing delays. “It generates the need for a lot more phone calls” by claimants, creating a vicious circle that has contributed to long wait times at the UIA call center, he said. 

The state has requested more than 150 program changes from the program’s developer, FAST Enterprises of Colorado, during the pandemic, including updates to fraud management programs, creation of a work queue to prioritize cases in need of staff review and changes to automated messages sent to claimants.

Even after the false fraud scandal, the state continued to extend the FAST contract on a yearly basis, including a $4.28 million extension last fall.

The current deal is set to expire Aug 28, and Michigan is likely to seek additional changes, said Gray. 

But Gray acknowledged the state is not well positioned to replace its vendor by the time the current deal expires in late August. 

“The frustration, anxiety and anger this is creating for claimants, the Legislature and UIA staff requires a rethink to the approach of data and benefits and usability that’s built into the system,” he said last month. 

FAST officials declined comment.

A golden touch

When Michigan set out to overhaul its unemployment insurance system a decade ago, its top priority wasn’t ensuring timely benefits for residents  or building capacity to handle huge claims in the event of a recession — let alone a pandemic. 

It was to “reduce the costs of operations” by weeding out fraud and streamlining the claims process, according to a 2010 request for bids issued in the waning days of former Gov. Jennifer Granholm’s administration. 

At the time, the state owed the federal government almost $4 billion because of high unemployment insurance costs during the Great Recession. Auditors told the agency it needed to get tougher, saying human staff was too hesitant to accuse claimants of fraud, which may have cost the agency between $158 million and $278 million in “overpayments” the prior three years. 

The state contracted with FAST Enterprises to begin building the system in 2011, the same year the Republican Sndyer signed laws that cut the number of weeks claimants could qualify for benefits, added criteria that disqualified more people, toughened fraud penalties and shifted reporting requirements to workers, requiring them to submit prior pay stubs.

Two years later, Snyder signed a budget that cut more than 500 agency staffers and his administration unveiled MiDAS in homage to a mythical Greek king who turned everything he touched to gold. 

The system saved money, recapturing $63 million in overpayments in the first quarter the state used the system, double the $31 million collected the previous quarter,according to a 2015 state report. 

Some of the savings, though, nearly $21 million, had to be refunded to residents in 2017 who were falsely accused of fraud.

Nor has MiDAS fixed the state’s problems with overpayments. In 2019, Michigan’s rate of improper unemployment payments was the highest in the nation at 41 percent, more than $189 million.

Finding real fraud

A system designed to root out fraud appears to have had trouble identifying it amid the pandemic.

A Nigerian fraud ring dubbed “Scattered Canary” by researchers has targeted unemployment systems nationwide, using personal information likely stolen from security breaches to siphon benefits enhanced by $600 per week by Congress.

Michigan has not disclosed how many fraudulent accounts it has actually uncovered, but state police have warned that more than 100,000 claims may have been falsified, potentially costing the state millions of dollars. The UIA said last month that roughly 58,000 Michiganders had reported imposters using their identity to seek jobless benefits. 

But there's no question many unemployed residents tied up in the probe did nothing wrong, including Kathleen FIsher of Utica in Macomb County.

“There’s many, many nights that I went to bed crying,” said Fisher, who lost her job as an analyst and spent weeks trying to resolve a small error she made in her initial claim before the state froze her benefits. 

“I’ve got to worry about trying to find a job for myself. I shouldn’t have to worry about getting my money.”

As of July 6, the UIA said it has resolved 445,000 of those claims initially flagged for potential fraud, but it has not disclosed how many were actually found to be fraudulent. 

Roughly 55,000 active accounts and 40,000 new claims remained frozen pending additional identity verification. 

The UIA announced Thursday it has hired Deloitte, a national consulting and risk management firm, for a forensic review to help identify fraudulent activity that could be quickly turned over to police. 

But the state has declined to explain how it flagged accounts amid the investigation and whether it is using the same kind of algorithms that incorrectly accused tens of thousands of residents in the scandal exposed five years earlier. 

“We cannot speak in detail publicly about our fraud prevention program, as this information is frequently used by criminal impostors to devise new strategies,” UIA spokesperson Jason Moon told Bridge, explaining the state has appointed a special fraud adviser who previously worked for the U.S. Secret Service. 

“There are still many unknowns – that is the nature of fraud – but were committed to doing everything possible to stop it,” Moon said.

Gray defended the agency’s decision to halt payments on active accounts during the pandemic, telling Bridge the state acted on “law enforcement information on how these imposters were presenting themselves” but tried to create a system whereby legitimate claimants could quickly prove their identity.

“We didn’t stop payments because we thought they’d necessarily committed fraud,” he said. 

Hidden costs

Michigan unemployment officials acknowledge they need to improve, but note the state has processed an unprecedented volume of claims amid the pandemic, often in a timely fashion, and has provided $15 billion in benefits to 97 percent of eligible claimants since March 15. 

Despite myriad claimant complaints during the pandemic, preliminary data show Michigan residents who qualified for unemployment have often been quickly paid. 

The state paid 580,000 claimants for the first time in April, and 90 percent of those first payments occurred within three weeks of an eligibility determination, according to the U.S. Department of Labor. That was up from an average of 85 percent over the prior five years and topped the federal standard of 87 percent. 

But there were more than 1.2 million claims by the end of April, and the state took much longer than usual to resolve eligibility disputes. Of the 37,000 cases where there was a “non-monetary” issue that jeopardized eligibility, the state only resolved 20 percent within three weeks, well below the state's 74 percent rate the prior five years and the 80 percent federal standard.

Some eligibility disputes have stretchen for months. The agency announced last week that it cleared a backlog of 11,824 claims that had been filed in April or earlier but is still working to resolve another 30,000 claims filed in May. 

While lawmakers have lambasted the agency and called on Whitmer to replace the leadership, Gray and other claimant advocates he worked for argue MiDAS is a large part of the problem.

“It definitely needs an overhaul, there’s no question about that,” Gray told Bridge. “This system seems to be designed with preventing overpayments, and not as much of a priority on making sure that people who are eligible are getting paid.”

Paris, the civil rights lawyer representing victims of the false fraud scandal, said the recent wave of stopped payments and fraud accusations “almost seems worse” than the scandal five years ago because they are based only on “the allegation that somebody is messing with something somewhere.”

“The system is set up to assume people are guilty so they are deterred from filing,” Paris said. 

“And what is frustrating for me is that regular people don’t know that this is a particular mode of government, this spreadsheet model, this algorithm model. My clients just think government is bad and you can’t rely on the government.”