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Lansing — A state official tasked with fixing glaring issues at the Michigan Unemployment Insurance Agency apologized Friday to tens of thousands of residents falsely accused of fraud, vowed to fix an automated computer system and called on legislators to review “harsh” penalties that ensnared victims.

As The Detroit News reported this week, Michigan’s 400 percent penalty for unemployment insurance fraud is believed to be the steepest in the nation. It compounds the financial burden for out-of-work residents who were falsely accused by the state’s automated computer system.

The agency has so far reversed 20,965 robo-fraud determinations made between October 2013 and August 2014 and refunded claimants $5.4 million. Of those cases, it says 62 percent involved unintentional overpayments that did not amount to fraud, while the remaining 38 percent should never have been flagged.

The state is now reviewing another 28,000 cases from the same period that it says involved both computer and staff, a process expected to take six months. Because some people are involved in multiple cases, the agency says about 39,600 individuals were affected in some way.

“I feel horrible about this whole thing,” Talent Investment Agency Director Wanda Stokes told The News on Friday. “We’ve got almost 40,000 individuals who have been involved in this situation, and my goal – my commitment – is to make sure we review all those claims and we make sure people have been treated fairly.”

Stokes, who took over her post in July and was not overseeing the unemployment agency during the main robo-fraud period, personally apologized for what happened. Earlier this month, she ordered a top-to-bottom review of the agency and reassigned the director.

Attorneys suing on behalf of claimants wrongly accused of fraud argue the state levied “excessive” penalties in violation of their due process rights. They say some residents were hit with restitution bills as large as $100,000 and warned the state could garnish their wages or seize their income tax returns.

The News this week profiled Kevin Grifka of Chelsea, 39, who was falsely flagged for fraud and hit with a $12,000 bill shortly before Christmas in 2014. The state later seized income tax collections worth $9,000 but eventually reversed his case and paid him back.

Indiana, which has the second highest penalties in the region, assesses up to a 100 percent fine — for a third offense. Michigan assess a 400 percent fine in most fraud cases, plus interest.

Jennifer Lord, lead attorney in a class-action suit against the state, called Michigan’s current penalty system a “form of cruel and unusual punishment.” David Blanchard, Grifka’s attorney in a separate federal case, called it “Draconian” and a “fundamental injustice.”

Stokes said Friday she wants to talk to legislators about revising the penalties. But she declined to offer specifics.

“There are a number of ways you can look at assessing a penalty, keeping in mind that the penalty is to help encourage compliance,” she said. “It’s not intended to be harsh. So if compliance is what our goal is, we should have a reasonable penalty that helps us get to that goal.”

The state stopped relying solely on the Michigan Integrated Data Automated System to make fraud determinations in late 2015, and a new law Gov. Rick Snyder signed last month requires human verification for any new cases. Stokes said a review of the $44 million computer system is roughly three-quarters complete.

“We’re going to finish that. And wherever we’re led in terms of issues with the system, we’re going to fix those,” she said.

Michigan’s unemployment Penalty and Interest Fund has swelled in recent years, coinciding with the surge in robo-fraud cases. But Stokes said a majority of the money – 68 percent – was collected from employers rather than individuals.

After refunding $5.4 million so far, the agency says about another $14 million in the fund was collected during the main robo-fraud determination period. Additional cases remain under review, and the agency is asking those who think they were affected to call the state starting Monday on a new hotline, 1-800-638-6372.

Lord said she is “encouraged” that Stokes is apologizing for hardships that residents started complaining about several years ago. She filed her class-action lawsuit in September 2015.

“I think it would also go a long ways to restoring confidence if they sped up the pace of their repayments,” she said Friday. “They’re moving very slowly.”

But simply repaying those who were wrongly accused of fraud isn’t enough, Lord argued, suggesting the full effect extended well beyond the pocketbook.

“We’re going to continue with our lawsuit even if everyone is paid back their monetary losses, because people’s lives have been impacted tremendously,” she said. “People have lost their homes. I recently talked to a woman who said her hair is falling out because she’s getting these bills.”

joosting@detroitnews.com

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