‘No remedy’ for unemployed falsely accused by Michigan’s fraud system

Jan. 10--LANSING -- Although it did not come online until 2013, the State of Michigan used an error-prone computer system that has wrongly accused tens of thousands of people of unemployment insurance fraud to assess jobless claims dating to 2007, officials confirmed Monday.

That means a significant number of Michigan residents falsely accused of fraud -- estimated to number between 27,000 and 50,000 -- could be out of luck in terms of seeking damages from the state.

Due to the statute of limitations, only Michigan unemployment insurance claimants who had money seized from them on Sept. 9, 2012, or later are able to participate in a class action against the state over the false fraud findings. The lawsuit now is in the Michigan Court of Claims and the Michigan Court of Appeals.

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"I would hate to think there's a category of people going back a decade now who ... don't have a remedy," Royal Oak attorney Jennifer Lord, who filed the lawsuit in 2015, told the Free Press on Monday.

At a hearing in the Michigan Court of Claims on March 8, Assistant Attorney General Peter Kotula told Judge Cynthia Stephens that the state began using the Michigan Integrated Data Automated System (MiDAS) on new claims in October 2013. That has been reported previously, based on public statements by unemployment insurance agency officials.

But at the hearing, Kotula also disclosed that MiDAS -- which had an astounding error rate of making false fraud findings in 93% of the cases it looked at -- was used to re-assess older unemployment insurance claims in a search for possible fraud, going back another six years to the depths of Michigan's recession, when claims were unusually high.

"Did the MiDAS system do a look back?" Stephens asked, according to a transcript obtained by the Free Press.

"Yes, it did," Kotula replied. "It goes back six years, and it would hit the main -- the Great Recession period."

Those wrongly accused of fraud were in many cases subjected to highest-in-the-nation, 400% fraud penalties, wage garnishment and other aggressive collection techniques, such as seizure of income tax refunds. Lord said tens of millions of dollars were unlawfully taken.

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Michigan's unemployment rate hit double digits for extended periods before the state began to emerge from a lengthy recession, late in 2009.

Lord said she thinks the cases from 2007 to 2013 would have been in addition to the 50,000-plus cases identified between 2013 and 2015.

But Dave Murray, a spokesman for the Unemployment Insurance Agency, said Monday that the 2007 to 2013 cases are included in the 2013 to 2015 numbers, because, although the claims were made much earlier, the MiDAS system made the fraud determinations during that two-year period. The agency says it put a stop to the automated fraud determinations in the latter part of 2015, requiring the judgment and participation of agency officials after that date.

It's not clear what -- if any -- recourse there is for Michigan residents who were falsely accused of unemployment insurance fraud and had money seized prior to Sept. 9, 2012. Lord said she and other attorneys are studying legal theories that might allow such people to make claims against the state.

Asked if the state would return money wrongly taken from jobless claimants, even in cases where the statute of limitations has expired, Murray said: "Right now, the focus is on reviewing the cases that were determined in the auto-adjudication process," but "the agency wants to be fair to anyone who is determined to be falsely accused."

House Minority Leader Sam Singh, D-East Lansing, said Monday that "if at any point in time the state government has wrongly taken money away from our citizens, they should be repaid immediately."

Murray said in December that an Unemployment Insurance Contingent Fund has been used to refund about $5.4 million to 2,571 claimants falsely accused of fraud.

"Some people have not yet been reimbursed because the agency doesn't have accurate contact information," Murray said. "We continue our efforts to contact these people."

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For those eligible for the lawsuit, Lord said she is also seeking compensation for other damages related to the fraud findings, such as damage to credit ratings and job prospects, plus emotional distress.

"Why is the attorney general still spending taxpayer money defending the lawsuits?" Lord asked."They have essentially admitted the allegations that these folks were deprived of their money without due process."

Andrea Bitely, a spokeswoman for Attorney General Bill Schuette, said "the State of Michigan is being sued," and "the Department of Attorney General is doing its constitutional duty and representing the State of Michigan. I cannot comment further because this is pending litigation."

Last week, the director of the Unemployment Insurance Agency was re-assigned as part of a top-to-bottom review of the agency, but Singh criticized Gov. Rick Snyder on Monday for not acting more quickly, noting the state auditor general identified the false fraud issue more than a year ago. He said slow response to problems has been a common problem with the Snyder administration, on problems including the Flint drinking water crisis.

Also Monday, Snyder signed into law Senate Bill 1008, sponsored by Sen. Dave Hildenbrand, R-Lowell, which takes $10 million from the Unemployment Insurance Contingent Fund to help balance the state's budget.

The balance in the fund's penalties and interest account -- largely built on money seized from claimants accused of fraud -- swelled from $3.1 million in 2011 to about $160 million in December, officials say.

It's not known how much of the contingent fund is composed of money that was wrongly seized, but it could be substantial.

Instead of being used to help balance the budget, "the money should be reserved to be immediately returned to those people that we have wrongly accused," said Singh.

Unemployment insurance premiums are paid into a trust fund and cannot be used for other purposes, but the contingent fund isn't under those restrictions. The fund is normally used to pay for administration of the state's Talent Investment Agency, including the development of workforce training programs.

Snyder spokeswoman Anna Heaton said a balance transfer from the contingent fund has been used in past administrations as part of the budget agreement. She said the size of the fund has grown further since October, to about $160 million in December.

"If the balance decreases significantly due to refunds from the reprocessing of claims, reimbursement to the fund would be a potential option in a future budget cycle," Heaton said Monday.

Snyder on Monday also signed House Bill 4982, sponsored by Rep. Roger Victory, R-Hudsonville, barring the Unemployment Insurance Agency in the future from adjudicating a claimant's case as fraud without human verification.

Contact Paul Egan: 517-372-8660 or [email protected]. Follow him on Twitter @paulegan4.

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