A Bridge Over Troubled Water

The Michigan Unemployed Insurance Agency (UIA) is supposed to be a lifeline for families facing dire economic straights, yet it continues to struggle at it's core mission.

The MiDAS Touch

After spending $47 million and over 2 years of work, in 2013 the UIA launched a new computer system called MiDAS to detect fraudulent claims. A year earlier the UIA had laid off 1/3 of it's workforce, meaning the expensive new computer system effectively became judge and jury in many cases. The new system had an immediate impact and detected fraud at an alarming rate. The agency saw a 326% increase in fraud cases in the first year.

The problem? Turns out the system had an error rate of 93%.

Unemployed workers, many turning for help to support their families in the darkest hours were being told no. It didn't end there, though, as Michigan's penalties for unemployment fraud are the harshest in the country. A typically penalty is assessed at four times the principal owed plus interest. A bad situation made worse by a computer algorithm. In some cases the Government seized ten's of thousands of dollars, leaving families were bankrupted and lives shattered.

After spending millions to litigate, by 2017 70% of fraud cases had been overturn and the state had paid out over $20 million to the wrongly accused. The MiDAS systems is still in use today.

Lessons Not Learned

Fast forward to Spring 2020 as the state was facing a drastic pandemic economic slowdown, a pair of changes to the agency's fraud detection system opened the flood gates for fraudulent claims. The first change, an mistake that went unnoticed for nearly 2 months, allowed some claims to be paid immediately bypasses the fraud detection system altogether. The second, an intentional decision, removed all of the filters from the fraud system besides suspicious routing numbers.

After realizing the extent of what was happening, the changes were reversed and the agency flagged over 600,000 claims as fraudulent.  This resulted in frozen benefits for many legitimate leaving the newly unemployed out in the cold. Faced with anger from the public and lawmakers over the problems, UIA leadership relaxed fraud controls and brought in over 1800 3rd party contractors to speed reviews.

The rush to onboard so many contractors led to a breakdown in the security screening process which itself led to further problems.  In one case a contract employee has been charged in a scheme involving the fraudulent payment of more than $2 million in unemployment benefits. Caught unprepared for an economic crisis and unable to respond quickly the agency continues to struggle. A November 2020 report by Deloitte & Touche LLP indicated the full extent of fraud could not be precisely known but estimates losses likely reached into the hundreds of millions of dollars.

An agency who's sole purpose it to assist people in a time of crisis, has repeatedly failed. It continues to be an expensive lesson for taxpayers and workers across Michigan.

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