Michigan audit urges stronger background checks for future hires

Michigan's unemployment agency routinely gave people previously convicted of fraud, embezzlement and similar financial crimes access to sensitive information that, in at least one case, was later used to steal public money, according to the findings of a new state audit released Friday.

That was due to a failure to conduct proper background checks and ambiguity as to whether a criminal history should prevent workers from reviewing sensitive tax and financial records used to determine unemployment benefits, auditors determined. Even after learning of this issue, the agency was slow to make changes.

The Office of the Michigan Auditor General dings the Unemployment Insurance Agency for hiring so-called "high-risk temporary workers with potential job disqualifying criminal convictions," while acknowledging in at least one case "it is unlikely the worker's criminal history would have precluded them from working at UIA."

Auditors reviewed more than 6,000 background checks, either provided directly to them by staffing agencies or the Michigan State Police. It found one staffing agency delivered at least 169 workers to the state who were previously convicted of a crime, including 47 with felony convictions. Convictions ranged from embezzlement and illegal sale or use of financial transaction devices, to identify theft and armed robbery.

Auditors did not indicate when the contractors were convicted of these financial crimes. In 2018, then-Gov. Rick Snyder announced the state of Michigan would no longer include questions about criminal history on employment applications. He said a criminal record is relevant to a final decision on filling a job, but should not immediately disqualify someone from having a chance at serving in that role.

Auditors recommended stronger background check policies and clear language preventing someone with a specific criminal history from working in a role that required access to financial information.

"We are recommending that UIA define the type and history of criminal convictions that would preclude individuals from working at UIA, and our testing showed examples of criminal histories that UIA could consider when developing this policy," said auditor spokeswoman Kelly Miller.

"These are financial-related crimes that may be applicable when hiring individuals accessing confidential personal information and payments systems."

A spokesman for the unemployment agency did not answer Free Press questions about how a criminal history affects the agency's current hiring decisions.

"UIA soon will issue new policies that specify under what conditions an individual cannot perform services for the agency," said spokesman Nick Assendelft.

While a previous, private audit found the agency may have paid up to $8.5 billion in fraudulent claims, the new report specifically highlighted $3.8 million stolen by a contractor with a "limited criminal history."

There were substantial other issues at the agency as well, stemming from flawed contracts, poor or no training and little oversight of state equipment used by contractors and others after leaving their jobs.

The unemployment agency agreed with the findings, acknowledging "some mistakes were made."

"As UIA worked quickly to increase the department's capacity to address Michiganders' needs, the execution was far from perfect. The lessons learned and opportunities articulated by the audit serve as the platform to launch an improved Michigan Unemployment Insurance Agency," said agency Director Julie Dale in a statement.

"Based on the OAG's findings, UIA has worked with the Department of Labor and Economic Opportunity to strengthen and develop new policies and procedures around system access, criminal background checks, data security, staff training and contractor hiring. I am confident that the reforms we have in process agency-wide will aide in implementing the much-needed change identified by the OAG."

Audit findings

The unemployment agency is a division of the Michigan Department of Labor and Economic Opportunity. Currently, there are about 700 permanent employees working at the agency, 470 employees who are considered limited-term staff and 360 contract employees.

Slammed by benefit requests after the pandemic and some related mandates crippled Michigan's economy, the agency scrambled to quickly bring on more workers.

This audit looked specifically at agency practices for onboarding and offboarding during this time, from March 2020 through June 2021. It also reviewed administrative funding available for the agency, but found no issues.

Michigan's Auditor General Doug Ringler and his staff determined:

No staffing agencies were required to run background checks or provide background check information to the state.

A rush to get workers in place may have resulted in a contract provision that could absolve a staffing agency of any fraud committed by its workers. One contractor provided by this agency later pleaded guilty to issuing $3.8 million in improper payments.

This person committed some fraud after no longer working with the state, indicating the person still had access to sensitive information and a computer despite no longer working as a contractor.

This was a rampant issue: UIA failed to nix access to sensitive information within two business days for 63 of 139 contractors who left their jobs by the end of 2020. On average, it took roughly a month for UIA to discontinue a department employee's access to important databases.

A program manager who oversaw awarding a contract to a staffing agency sought a job with that agency two weeks after giving them the contract. That person was hired by the staffing agency eight months later. The auditor determined the staffing agency did not receive favorable treatment, although "the interactions between the parties give the appearance of a potential conflict."

New contractors routinely worked for days or weeks before receiving adequate training.

Latest issues at UIA

This is the second audit examining the state's Unemployment Insurance Agency's handling of a massive influx in jobless claims in the pandemic. The first, released in November 2021, found the agency "wasn't effective" in its implementation of the federal Pandemic Unemployment Assistance program, ultimately leading to $3.9 billion in overpayments of federal dollars to ineligible claimants.

Early on in the pandemic, the agency contracted with three outside vendors in order to staff up quickly to handle an influx in claims and calls. The UIA did not perform background checks or due diligence on the contractors it hired, a Deloitte report that was prepared for the agency revealed, under the expectation that the outside vendors would do so.

Brandi Hawkins was one of those contractors. She was sentenced to 58 months in federal prison in October after pleading guilty for her role in a multimillion-dollar unemployment insurance fraud scheme.

Nine contract employees have been fired and an additional nine state employees have been suspended because of pending criminal investigations by federal authorities, according to recent figures provided by the agency.

In late 2020, then-agency director Steve Gray resigned from his post, a decision Gov. Gretchen Whitmer deemed "a good thing." It was later revealed he received roughly $86,000 in a separation agreement after his departure, one of several similar payments that prompted substantial scrutiny.

Contact Dave Boucher: dboucher@freepress.com or 313-938-4591. Follow him on Twitter @Dave_Boucher1.