Unemployment agency’s struggles targeted in new audit

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — The Michigan Unemployment Insurance Agency has not fully complied with 2012 recommendations to improve tax collections from delinquent employers, according to a critical new report released Wednesday by state Auditor General Doug Ringler.

The agency has been slow to improve processes for collecting delinquent unemployment taxes, interest and penalties from Michigan employers, according to the audit, and has filed tax liens against several employers in counties where they don’t own property.

The audit comes less than a week after Unemployment Insurance Agency Director Sharon Moffett-Massey was reassigned in the wake of a separate controversy involving high rates of false fraud accusations against unemployment claimants.

Talent Investment Agency Director Wanda M. Stokes has 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’s primary responsibility is collecting unemployment taxes from businesses and paying benefits to eligible residents, but the auditor general’s office has raised questions about the agency’s work on both fronts.

A February 2016 state audit highlighted flaws with the Michigan Integrated Data Automated System, a computer system that erroneously accused unemployment claimants of fraud. An internal review released last month showed the agency falsely accused more than 20,000 claimants between October 2013 and August 2015.

The new audit indicates the Unemployment Insurance Agency has also begun using the automated system to issue withholding notices for delinquent employers and generate work orders to prompt legal action against them.

But in the latest report, auditors said the agency did not issue withholding notices to 7 of 10 employers in cases it reviewed. As of May 21, those companies owed a combined $230,872 in delinquent taxes, interest and penalties.

The Unemployment Insurance Agency also failed to pursue court action against all eight employers for which civil judgment work orders were generated, according to the audit. Those employers owed a combined $68,273.

“We again recommend (agency units) initiate sufficient and timely efforts to collect delinquent (unemployment) taxes from contributing employers,” the audit said, reiterating a plea from more than four years ago.

The agency, in a written response to the new audit, said it agreed with findings and intends to comply.

“UIA has undergone extensive continuous process improvement efforts that have resulted in improved efficiency, increased timeliness, and a change in the order of the collections process,” it said.

The agency said it issues withholding notices to employers who voluntarily provide their banking information, which can otherwise be difficult to obtain, but said it is “exploring new ways to solve this challenge.” The agency agreed it “must be more proactive” in pursuing civil judgments against delinquent employers through referrals to the Attorney General’s Office.

The audit also found the agency has continued to file tax liens against employers in counties where they do not actually own any real property. The audit reported that four of the 31 liens it reviewed were levied in counties where the delinquent employer did not own property. In one case, the employer owed more than $50,000.

Auditors said the agency only partially complied with recommendations to identify and investigate employers potentially involved in “SUTA dumping,” the act of transferring or acquiring a business for the sole purpose of reducing its contribution rate.

All told, auditors said the agency fully complied with six of its 2012 recommendations, partially complied with eight others and did not comply on two. Noted improvements included the use of employer fraud detection alert software and a related comprehensive data sharing agreement with the Department of Treasury.

Agency spokesman Dave Murray said the audit shows the agency “has made significant progress during the last five years to improve its overall operations in State Unemployment Tax Act enforcement and to improve timeliness in its investigatory process in cases of suspected fraudulent activity by employers.”

The Unemployment Insurance Agency has reformed policies and processes as a result of the findings, he said. “The auditor’s report notes these improvements, and we know there is more to do.”