LANSING, Mich. — A new audit shows the Michigan Unemployment Insurance Agency may have paid out more than $1.5 billion in claims without checking them for fraud.
The 30-page report done by consulting firm Deloitte, shows those claims were considered higher-risk.
INTERVIEWS
The company interviewed 24 UIA and Department of Labor and Economic Opportunity (LEO) personnel including executive leadership. They reviewed documents, emails, charts, polices, and federal and state UI guidance.
“No legislator ever said, 'UIA change your fraud detection systems in order to pay claims quicker'. It’s actually the opposite," said state representative Matt Hall.
Hall chairs the Joint Select Committee on the COVID-19 Pandemic. A committee that has already been looking into the agency's handling of benefits during the pandemic.
“The department’s actions contributed to this widespread fraud. You know, now people understand why we’ve been talking about this for so long," said Hall.
FORMER UIA DIRECTOR
The report alleges former UIA Director Steve Gray, who’s since resigned, downplayed fraud during a staff call.
The audit stated, “…it is apparent there was a lack of consensus among UIA administrators regarding certain of the changes taking place… and that Mr. Gray had purportedly notified UIA personnel on a call that fraud prevention was not a high priority, which Ms. Burns found “concerning.”
THIRD-PARTY VENDORS
The assessment found that the UIA also worked with third-party vendors to hire people to process claims but did not perform background checks. If they did, they were not reported to the UIA.
“And UIA actually told us that the contractors performed the background checks. What we learned in this report, is they did not," said Hall.
INTERNAL CHANGES
The agency was forced to make some quick changes to its policies following new guidelines from state executive orders and the federal government related to the CARES Act. It was determined that there was confusion within the agency as to who had the final say to make those changes.
There were concerns regarding the agency’s “10-day hold” period for the payment of claims, changes to backdating claims that were submitted past the deadline, and changes to the UIA’s identity verification process.
“So it seems like they didn’t follow their proper processes that were in place that would protect the integrity of the system," Hall said, "and there also seems to be a lot of internal confusion about who was in charge.”
PAYING CLAIMS
When it comes to the speed of paying out claims, the assessment found, the UIA’s “perceived need to prioritize speed sometimes took priority over obtaining consensus and implementation direction among the UIA leadership team… Based on discussions with UIA personnel, it is understood that UIA was receiving pressure to expedite payments from numerous directions within the State, including lawmakers.”
"Lawmakers have been concerned about the payments and making sure people get their benefits. But lawmakers like myself have also been very hard on them about the fraud," said Hall.
FRAUDULENT FILINGS
In terms of fraud, there was a case of an email exchange laid out where the UIA’s Head of Investigations identified several claims of potential interest – including six PUA claims that were linked to the same bank account. The report says an identity verification request was never opened by the Fraud Manager and the funds were released.
UIA then stopped all benefits from going out on May 19th to update the system to make sure all claims would go through the manager before being released.
On May 27th UIA estimated $1.5 billion in higher-risk claims had potentially been paid out prior to going through a Fraud Manager. Additional fraud was found to have occurred inside the agency by contractors and UIA personnel who used their access to the state’s unemployment system to “fraudulently approve/disburse millions of dollars in federal and state UI claims to ineligible claimants in exchange for payments and kickbacks.”
“You know, this is taxpayer money and we’re talking about hundreds of millions of dollars based on this report that could’ve been paid out fraudulently because they were not following their procedures on detecting fraud and they were trying to pay out claims as fast as they can," said Hall.
ID VERIFICATION
Between April 11th and July 28th, UIA allowed people to verify their identities over the phone without requiring the “relevant supporting documentation to be submitted”.
Hall says it's important to note the transparency in regards to these findings, but says the agency has a long way to go to regain the public's trust.
“So they’ve released this report, that’s important. But I know many reporters like yourself they don’t answer your questions. They don’t answer many of the legislature’s questions. And the reason we’re asking these questions is because the transparency and telling the public what is going on leads to accountability," he said.
AGENCY'S RESPONSE
The agency says it’s since made the following changes to its system and operational issues:
- Reactivated all Fraud Manager filters on May 22, 2020 and additional filters were later added.
- Reinstated the 10-day hold requirement for new claims on September 24, 2020.
- Implemented a benefit payment review for all backdated claims and returned to normal procedure for late filing on traditional state UI claims on June 11, 2020.
- Discontinued ID verification over the phone on July 28, 2020, and instead requires claimants to submit required supporting documents to verify their identity.
- Reestablished the Investigations Unit on May 22, 2020, assembled the State’s Unemployment Insurance Fraud Task Force on June 5, 2020, and appointed retired Special Agent in Charge for the U.S. Secret Service Jeffrey Frost as a Special Fraud Advisor to serve on the task force on June 30, 2020.
- Made a number of changes to the procedures for onboarding and managing contractors hired through third-party vendors and is running daily reports of offboarded contractors to deactivate system access.
Governor Gretchen Whitmer's office issued this statement to FOX 17 about the audit saying, "The agency agrees with the report’s conclusions, has taken them very seriously and in many cases has taken corrective actions to address the findings. Under new leadership, UIA will continue to review its operations and procedures in an effort to make sure it’s striking the right balance between getting timely payments to hardworking families and fraud protection.”
