Unemployed workers falsely accused of fraud need more than just repayment

Imagine receiving a letter in the mail telling you that you committed Unemployment Insurance (UI) fraud several years ago and owed the government thousands of dollars in benefit repayments and penalties.

Beginning in 2013, workers who became unemployed began filing claims using Michigan’s new online unemployment system called the Michigan Integrated Data Automated System, or MiDAS. These workers did not expect to receive notices in the mail, in some cases long after they had found work and stopped receiving UI benefits, wrongly accusing them of fraud. The letters demanded thousands of dollars in repayment of their benefits plus large penalties, but did not provide information as to why the claimants were determined to have committed fraud.

MI should institute real unemployment reform 2While some workers were able to respond to their first notification right away by going to their local unemployment agency and resolving the problem, many did not receive that notification because they had moved and the letter was sent to the old address. Others received their initial notification through their online UI accounts that they had stopped checking because they already found work and stopped receiving benefits. By the time these workers received a subsequent notification, they had passed the 30-day period in which they could contest or appeal the fraud determinations.

An internal investigation by the Unemployment Insurance Agency reviewed the fraud determinations that took place over a 22-month period, and found that 93 percent of workers (nearly 21,000) said to have committed fraud were accused wrongly. An additional 20,000 determinations are currently being reviewed.

All of this has created tremendous hardship for workers who were playing by the rules. Many began paying what the government said they owed, while others had their wages garnished. Some workers have had to file for bankruptcy.

The Unemployment Insurance Agency is taking steps to clear the fraud charges and pay workers their money back, and to make changes in how fraud is determined in order to prevent this in the future. However, for many workers and their families, much damage has already been done. Houses have been foreclosed on, bankruptcies have been filed, lives have been disrupted.

The State of Michigan needs to make reparations for these hardships and help these families become whole. Just as replacing all the lead pipes in Flint doesn’t make up for the harm already done to those poisoned, returning only the money taken from workers (even with interest) isn’t enough to make up for the harm done to those falsely accused. Michigan should also consider what workers spent or lost on litigation, bankruptcy discharges and foreclosure, and explore ways to enable those bankruptcy and foreclosure cases to be reopened.

Michigan should also institute real reform to the way the agency determines and responds to UI fraud. Some suggested reforms include:

  • Bring fraud penalties in line with those of other states. Currently, most states have a fraud penalty of 15-25% of the amount received fraudulently, but in Michigan, claimants often are charged as high as 400%!
  • Lower wage garnishment to 20%.
  • Improve fraud determination notifications by requiring issuance through certified mail, clearly stated reasons for the determination, a 60-day response window, and a second notice when the agency has not received a response.

This unnecessary travesty takes place in the context of Michigan’s willfully making it more difficult for workers to collect UI while they seek jobs and shortening the time allowed for benefits in situations in which a worker is having difficulty finding work. How to correct and make restitution for the damage done and make UI more responsive in the future is a conversation that needs to take place now rather than later. The Michigan League for Public Policy plans to be part of that conversation.

— Peter Ruark