Up to $8.51B in Michigan jobless benefits lost to fraudsters

As much as $8.51 billion in unemployment benefits was sent to fraudsters during the pandemic, a report released Wednesday by Michigan's Unemployment Insurance Agency found.

The report, prepared by Deloitte & Touche LLP for the UIA, found that the agency paid an estimated $8.4 billion-$8.51 billion in potentially fraudulent claims from March 1, 2020, to Sept.30, 2021, but avoided paying an estimated $43.7billion in fraudulent claims in that time period.

Julia Dale, the new director of the agency, said her initial reaction to the report, which updated a Deloitte report released in November 2020, was "outrage."

"When you look at the numbers here, to say that they're troubling is an understatement," Dale said. "I'm frustrated by those who are out there willing to take advantage of the system."

Throughout the pandemic, when there was a torrent of new jobless claims. Michigan and other states faced attacks on their unemployment systems, with some applicants trying to take advantage of overwhelmed systems to receive the more generous benefits.

For example, an audit of Ohio's unemployment insurance system released in October found the state's agency paid out more than $3.8 billion in error from April 1, 2020, through June 30, 2021, while California distributed more than $20 billion in fraudulent unemployment payments since the start of the pandemic, multiple news outlets have reported.

Most of the money paid to fraudsters in Michigan was federally funded, the Deloitte report found. More specifically, 97% of the total paid in error came from the federal government through such programs as Pandemic Unemployment Assistance, which expanded benefits to cover freelancers and contract workers during the pandemic, and the Federal Pandemic Unemployment Compensation program, which added $600 to claimants' weekly benefit amount.

As much as $249 million, or 2.9% of the total estimated fraud paid, was paid with state-funded benefits.

"The trust fund did not feel the impact that it might have felt," Dale said. "That's an important distinction, especially for employers" who pay taxes to support the Unemployment Trust Fund.

Dale said there are reasons to be hopeful.

The report found that the agency's antifraud efforts cut the rate of cases involving imposter fraud and intentional misrepresentation to 0.57%, compared with 2.01% from July 2017 through July 2020, according to U.S. Department of Labor data.

Dale said the drop in the rate of cases involving fraud is evidence the agency's efforts to combat fraud are sustainable.

"Operational changes and numerous policy changes have been made, and we're under new leadership," Dale said, referring to the resignation of former Director Steve Gray in November 2020. Dale took over for Acting Director Liza Estlund Olson in October. "We do believe that we can really set the standard for a path going forward when it comes to combating fraud."

As part of the release of the latest numbers, Michigan Gov. Gretchen Whitmer also signed an executive order Wednesday permanently establishing the Unemployment Insurance Fraud Response Team, an advisory body within the state's Department of Labor and Economic Opportunity that includes representatives from state departments and law enforcement partners to identify, investigate and prosecute people who steal benefits.

At least 40 people have now been accused of stealing unemployment insurance funds from Michigan during the pandemic.

Whitmer also issued an executive directive Wednesday calling for the agency to consistently use "Fraud Manager," or a similar technology, to detect anomalies that indicate a claim requires further review prior to payment. The "Fraud Manager" tool was turned off for a period of time early on in the pandemic in order to get benefits to unemployed workers at a faster pace, but resulted in benefits being distributed to fraudsters.

The directive also calls for creating partnerships with community organizations to educate potential unemployment insurance claimants on eligibility requirements and retaining experts to counter criminal attacks on the unemployment insurance system, among other actions.

"We know that we have the support, we know that we have clear direction from the governor's office ... and that is something that we welcome and are grateful for," Dale said.

The UIA said it has paid more than $39 billion in benefits since the start of the pandemic to more than 3.3 million workers, with more than 99% of eligible claimants receiving benefits.