Unemployed and Under Attack

Aug. 26, 2016

The state responded after an automated fraud-detection program for unemployment benefit recipients went too far. Critics say the state hasn’t done enough.

Tens of thousands of bills – each leveling allegations of fraud and demanding thousands of dollars in penalties – appeared in the mail of people who received unemployment benefits in recent years.

Then a bombshell dropped: the discovery that the vast majority of those accusations were false.

Now, the fallout: lawsuits and calls for an overhaul of how Michigan runs its unemployment pro-gram.

"I pretty much got a bill in the mail saying, "˜Hey, you owe the state almost $9,000. What are you going to do about it?’ And I thought, "˜What?’" said Theresa Martin, a Kewadin resident who collected unemployment when she was underemployed in 2013.

Martin was later exonerated. Her attorney, Mark Risk of Traverse City, said Martin was snared by an out-of-control computerized fraud-detection system developed by the Michigan Unemployment Insurance Agency (UIA) in 2012 that automated determinations of fraud and sought to collect penalties without legal findings of guilt.

Martin wasn’t the only one accused – or found innocent. Risk points to a 2015 Michigan Auditor General report that found there was no fraud in 85 percent of the cases the system had flagged.

A HAMMER HANGING IN THE AIR

Risk, a former administrative law judge who presided over unemployment cases, said Martin and others faced a bewildering struggle to challenge the fraud allegations. Martin’s case dragged on for a year and a half from the day she received that letter to the day she prevailed.

Martin didn’t learn the details of the claim against her until the very end.

Turns out, the computer had flagged her file All because photos courtesy every week Tim Roman she had been required to report pay from a part-time job she main tained

while she collected unemployment compensation. Her employer paid her every two weeks, so she divided that figure in two and reported that as her weekly income. Her employer, however, had reported her actual pay each week, and those figures did not match.

The state’s computer, called MiDAS, short for the Michigan Integrated Data Automated System, concluded fraud had occurred, a determination made without human review.

An aggressive campaign to collect restitution and penalties began. When Martin learned of the case, she was fearful and paid some of the penalties. The state also garnished her income tax refund.

Martin only collected $2,000 in benefits, but the state demanded $9,000 because it assesses penalties of four times the amount of the supposed fraud, Risk said.

Once Martin’s case finally received a hearing before an administrative law judge this April, the charges were almost immediately dismissed.

That didn’t mean Martin was able to get a refund of the penalties she’d already paid, however. Martin said it was a struggle to get that $5,200 returned, even after she had prevailed in the justice system.

"I had to fight like hell to get my money back," she said. "I just kept bugging them. I’d call them every day and just get so upset and say, "˜How can you guys possibly do this to people?’"

HARDSHIP AND A REVAMPED SYSTEM

James Sisk, a retired administrative law judge in Traverse City who worked in the unemployment system for decades, has taken on some cases throughout his retirement and said he’s been disturbed by some of the changes he’s seen. He said determinations of fraud used to be made with due process of law. That hasn’t been the case under the automated computer system.

"It’s basically that they don’t bother to obtain both sides of the story before they make a ruling," Sisk said.

What strikes Sisk as particularly galling is the state’s refusal to refund money – paid voluntarily or through garnishment – in cases where people are exonerated.

"Think about that for a minute. What entitlement does the agency have to any of that money? They’ve gotten that money by an improper process," he said.

Erroneous fraud allegations have caused tremendous hardship, Risk said. He said the false claims have led to countless bankruptcies, at least one suicide, and one case where a woman attempted to cut off her own hand.

David Blanchard, an Ann Arbor-based employment attorney, said the UIA has traumatized thousands of people.

"I’ve represented people that their own families say to them, "˜Oh, you’re accused of fraud? You must have done something wrong," Blanchard said.

Lynda Robinson, a UIA spokeswoman who agreed to answer questions via email, said the computer system was meant to discover cases of fraud so that the agency could free up resources to fulfill its mission to provide assistance to people who qualify for benefits.

She said the automated fraud-detection system is no longer in operation.

"This function was turned off in August 2015," she wrote.

Robinson said that the agency now investigates suspected fraud before determinations are made, and that humans, not computers, review the facts.

"When an issue arises on a claim regarding fraud, the agency investigates the issue, requests additional information from both the employer and claimant, evaluates the information, and then makes a decision based on the facts at hand," she wrote. "No decision is made without first attempting to contact all the parties involved."

LOST IN THE EMAIL

Risk said one of the most outrageous aspects of the way the UIA pursued fraud cases was the manner in which it notified people accused of fraud – it sent notice to an email account the person almost certainly no longer used, one created by the state so that benefits recipients could manage their accounts. The problem with that approach? Once a person no longer received benefits, there was no reason for them to check that account, Risk said.

More than a year later, after the period in which the person could challenge the charges expired, people would receive a letter in the mail informing them of the charges and the penalties they owed.

Risk said he once cross-examined a UIA caseworker about the messages sent to the abandoned accounts, accounts the state calls MiRAM (Michigan Web Account Manager).

"I said, "˜Don’t you know that people aren’t going to be checking that anymore? Why would they check it after they’ve already collected their benefits?’ And she said, "˜We’ve got a rule that says you’re supposed to check it.’" Later he asked the woman why, then, the UIA sent the collections notice through the mail a year later.

"I asked her, why did you send that notification out by mail? And her response, really, was a little but of a "˜Duh!’" She said, "˜Duh! They’re not looking at their MiRAM account,’" Risk said.

Robinson defended the use of MiRAM accounts to serve the initial notice of a fraud case. She said recipients are encouraged to check their accounts for up to six years after they stop receiving benefits, the window in which people can be charged with fraud.

Risk said he’s been able to get fraud determinations thrown out in administrative law court because of the way people were notified of the fraud.

"Again, I don’t think that was intentional, but if you’re a conspiracy theorist, you could say that they did wait to make sure that the 30 days went past and the one year went past, because of the two statute of limitations there," Risk said. "You get past the two of them, and it’s next to impossible to go back and have your case reviewed."

ALLEGATION WITHOUT EXPLANATION

Another hurdle faced by people accused of fraud was that, in most cases, the UIA never described the fraud that was alleged.

In case after case Risk said he found it impossible to learn the details about specific allegations of fraud until those cases reached the hearing before an administrative law judge.

Lack of specific allegations leaves people and their lawyers, if they’ve hired one, scrambling to figure out what they’ve been accused of.

That flips on its head one of the fundamental precepts of the American justice system – that a person is innocent until they are proved guilty, Risk said. The UIA accomplishes this by not bringing the cases in state court through prosecutors’ offices, but by bringing them administratively, where the UIA can seek criminal penalties but isn’t required to bear the burden of proof and other safeguards it would have to overcome in a real court.

"So I’m working my ass off – I’ve got to determine where they think the fraud is, and then I’ve got to prove that there isn’t fraud," he said.

Risk said stepped-up fraud enforcement at the UIA was enacted for good reason – the agency was historically bad at it.

"The federal government was always warning them: You’ve got problems here, you’ve got to clean it up," he said. "So I honestly think the Snyder administration came in wanting to make some changes. And that’s why the computer program happened."

However good the intention, the execution was clearly a problem.

"There was just a total failure to sit down and figure out the consequences, intended and unintended," he said.

A FEDERAL CASE

Whatever the state has done to add human review to its fraud detection process, it’s not been enough, said Blanchard, who is suing the state in federal court in an effort to force the UIA to change its fraud investigation and collection process.

There is also a potential class-action lawsuit pending against UIA in the Michigan Court of Claims.

"It absolutely doesn’t solve the problem," Blanchard said of UIA reforms. "I have no idea how far they’ve stopped using the computer, and I’ve heard conflicting answers to that question."

Blanchard said that, from what he’s seen, the human review has not removed the presumption of guilt.

"We want to stop all collections in this area on bogus robo-fraud accusations, and we want the system reformed to ensure basic due process rights, and fairness be put back into the system," he said.

Since the federal suit was filed, the state has filed three motions to dismiss. The Michigan Attorney General’s office has sought to get the lawsuit thrown out; it argues that since the state has taken corrective action, the allegations are no longer valid.

A hearing on the third motion to dismiss is scheduled for this week in Detroit.

Risk said he doesn’t know how UIA has changed its practices, but he agrees that the flow of bad fraud cases has stopped recently.

"At least the faucet has been turned off," he said. "I’m getting no more new fraud cases."

Blanchard hopes state legislators act to reform the UIA. Some progress: The Michigan State House Oversight and Ethics Committee recently passed HB 4982 H-6, a bill that would end automated fraud accusations and aggressive collection of penalties. It is pending in the House.

COMPARISONS TO FLINT

Risk believes what happened at the UIA is analogous to what happened with the state’s oversight of Flint’s water system.

"I’ve given that a lot of thought because there are a lot of similarities, and I hate to compare it because of what happened to the long-term health of the people of Flint, but there are absolute similarities,’ Risk said.

Risk believes that both failures stemmed from a desire to reinvent government without a thorough consideration of the consequences.

"I have to believe people act in good faith.

And I have to believe that Gov. Snyder was trying to act in good faith, but I think unless you understand how government is run and keep in mind the due process issues, that you could easily get caught up in the business decisions that save money in trying to make efficient, quick changes," Risk said. "You don’t look at the natural consequences, much less what could be the unintended consequences."