State agency shakeup follows false fraud allegations

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — The director of the Michigan Unemployment Insurance Agency has been reassigned after a shocking review revealed that an automated computer system made more than 20,000 fraud claims against out-of-work residents that were later overturned on review.

Sharon Moffett-Massey has been reassigned to serve on special projects, Talent Investment Agency Director Wanda M. Stokes said Thursday as she unveiled a three-point plan to address unemployment agency “challenges.” Bruce Noll, TIA’s legislative liaison, will serve as acting assistant director and oversee the unemployment agency during a national replacement search.

The shakeup comes as Gov. Rick Snyder considers whether to sign a bill that would free the state to spend $10 million from an unemployment security fund. Critics argue the fund should not be touched because it includes penalty collections from people wrongly accused of fraud.

Stokes, appointed to her post in July, promised to conduct a “top-to-bottom review” of the unemployment agency, which falls under the talent agency and provides temporary income assistance to residents who lose jobs.

“The Unemployment Insurance Agency helps Michiganders through a difficult time in their lives, and has many dedicated employees who serve our state well,” Stokes said in a statement. “But there are significant challenges within the agency that must be addressed. We must do better, and I am committed to making the agency stronger and more effective.”

The agency is under renewed fire following recent probes of the Michigan Integrated Data Automated System, which the state relied on to make unemployment insurance fraud determinations between October 2013 and August 2015.

A review conducted by the agency and released in December showed the computer system wrongly accused at least 20,965 unemployment recipients of fraud between October 2013 and August 2015. The state reviewed 22,427 of 53,633 cases that originated during that 22-month span. Of those, original fraud determinations were upheld 1,462 times on appeal, a 93 percent error rate.

The agency said it repaid 2,572 individuals it had fined for alleged fraud. Total repayments topped $5.4 million.

Jennifer Lord, lead attorney in a class-action lawsuit against the state, said some claimants were erroneously slapped with compounding penalty and interest bills as high as $100,000.

“Almost everybody had the same story,” Lord said. “They didn’t hear from the state at all. They didn’t know they were being accused of fraud. They didn’t have an opportunity to defend themselves, and then they would either get a bill for some outrageous amount ... or they’d get a garnishment notice from their employer or get their tax refund seized.”

Penalties collected under a state unemployment security law are deposited into a “contingent fund” that, as of September, had ballooned to a balance of $154.7 million. Legislation that reached Snyder’s desk last week would transfer $10 million to the state general fund for legislators to spend on other budget priorities.

“That’s absolutely outrageous,” Lord said. “It’s not the state’s money to take. They know they were wrong 94 percent of the time, and now they’re trying to use this stolen money to pay their bills.”

The Michigan Auditor General’s Office documented problems with the automated fraud detection system over the past year, and Stokes also credited state lawmakers and U.S. Rep. Sander Levin with raising the issue. Levin, D-Royal Oak, called for an investigation in an April 25 letter to Gov. Rick Snyder.

“I thank the people who have brought problems to our attention,” Stokes said. “We already have made some improvements, and there are more to come. We are moving quickly because Michigan residents and employers deserve the best service possible.”

Levin called the moves “long overdue.”

“I am pleased to see the changes that the Talent Investment Agency Director Wanda Stokes is making at the Unemployment Insurance Agency,” he said in a statement. “It is vital that these changes happen quickly and are long-lasting, and I hope the state will re-review all of the fraud decisions during the period of automatic computer determination.”

Stokes’ three-point improvement plan calls for the agency to focus on customer services, an organizational review, and new methods for identifying and addressing fraud.

The agency stopped relying solely on the automated system to flag fraud in August 2015. Instead, trained staff now investigate and review all cases.

Stokes said the agency has also changed the way it uses data compiled by the computer system to identify potential fraud.