Michigan unemployment error resulted in overpayments of $ 3.9 billion, audit finds

Former Unemployment Insurance Agency director Steve Gray discussed the risks of quickly developing eligibility criteria for federal unemployment assistance with Gov. Gretchen Whitmer’s office as early as April 2020, months before the state is forced to recover these eligibility conditions and ask thousands of people to renew their certification. , revealed a state audit.

The error led to approximately 648,100 notices being sent to applicants who had to recertify their eligibility this summer and were warned that they may have to refund the money they received.The Ministry of Labor subsequently granted exemptions to those overpaid due to the state’s error.

The audit estimated that at least $ 3.9 billion in overpayments were paid to 347,437 claimants who were later deemed ineligible – an amount that is unlikely to be recovered “because the improper payments were to blame. of the UIA ”. Auditors said the agency still counts the total overpayment and likely exceeds the estimate of $ 3.9 billion.

The agency has paid out a total of $ 39 billion in unemployment assistance to 3.5 million Michigan residents since March 2020.

Gray, according to the audit, prepared a slideshow in April 2020 that showed the pros and cons of “paying as soon as possible and establishing eligibility in parallel” and shared the presentation with senior UIA officials. and the Ministry of Labor and Economic Opportunities as well as the Governor’s Executive Office.

“The slide set identified the risk of overpayment for workers who would not be eligible because they quit or were not previously working as reasons for not paying as soon as possible,” the audit said. Another slide indicated that the state would likely not have to claim federal benefits that were paid in error if that was the case.

The slide show also said, “This means we have a choice between speed and risk of overpayment” and identified the affected population at 190,000 claimants at the time, “the audit said.

The end result of the decision on eligibility criteria was that the agency’s process allowed “people with no previous connection to the labor market and who may have been unemployed for reasons unrelated to COVID-19” to receive federal benefits, according to the audit.

Although the audit noted that Gray had informed senior officials of the risk, it also noted that the former director was known to make decisions “unilaterally”. Gray resigned from his post in November 2020.

In a statement Thursday, Unemployment Insurance Agency director Julia Dale said the agency appreciated the audit findings and had already worked to correct some of the issues that led to those findings prior to the audit.

“The audit looked at our operations at a time when, due to the pandemic, the agency was implementing complicated new federal programs while processing hundreds of thousands of requests every week, moving nearly all of our staff to operations. remotely, and simultaneously responding to unprecedented levels of sophisticated criminal efforts to defraud the agency, ”said Dale.

Michigan Representative Steve Johnson said in a statement Thursday that “widespread incompetence” by the Unemployment Insurance Agency has resulted in delays and confusion for many Michigan residents forced to take time off work. the pandemic. The Republican from Wayland, who has held a series of hearings before the House Oversight Committee on UIA challenges, said he hopes the agency can improve.

“These results provide concrete proof that a pivot arm of Governor Whitmer’s administration failed when people needed it most,” Johnson said. “It was a state error with its criteria, not a mistake made by the applicants. Worse yet, the UIA continued on a path it was told was incorrect.”

Thursday’s audit found that the agency was unable to explain its rationale for including eligibility requirements unrelated to federal guidelines or why it failed to address the issue when the U.S. Department of Labor identified it in June 2020, according to the audit.

At that time, in June 2020, the United States Department of Labor notified the agency of “urgent” and “critical” issues regarding the unauthorized criteria it developed and its inability to demand auto seekers. -certify the reason for their unemployment, according to the audit. .

“The UIA continued to include the 4 unauthorized eligibility criteria on its forms and sent conflicting documents to the USDOL,” the audit said. “On July 1, 2020, the UIA indicated that it had removed the unauthorized eligibility criteria, and on July 16, 2020, the UIA indicated that it had not done so.”

The Federal Department told auditors that it approved the state agency’s PUA process on July 17, 2020 “with the impression that the UIA was reviewing non-COVID-19 eligibility reasons. However, the UIA was not.

The Federal Department again informed states in September 2020 that they need to correct eligibility issues and the UIA began processing the changes, but continued to include the four unauthorized eligibility criteria until March. . The state removed the criteria after a Jan.6 meeting with federal officials about a review they had conducted of the state system.

The state agreed with the findings of Thursday’s audit, but stressed that the development of the criteria came at a time when the agency was burdened with the workload as it juggled historic claims, attempted to stop overwhelming fraud attempts and implemented federal programs.

The agency said it corrected eight of the 11 findings revealed in January after the federal review, according to the audit.

Overall, the audit found the agency’s efforts to be “not effective”and found two material conditions, or serious conclusions, including an inappropriate “top tone” regarding internal controls for unemployment assistance in the event of a pandemic; and the establishment of incorrect eligibility criteria and delays in corrective actions.

“The UIA informed us that it has bypassed established procedures requiring approval from key UIA personnel when developing its PUA application and certification criteria due to the urgency of rendering the application available in response to the pandemic, ”the audit said.

The agency did not document the process used to develop the criteria and “was unable to demonstrate who was involved in the decisions and no justification for inappropriately extending the eligibility criteria to the PUA”, said the audit.

The report released Thursday is the first of four the Office of the Auditor General plans to release in the coming months.

The next report, due in early 2022, will assess the agency’s handling of claims during the pandemic and its communication with claimants during that time.

Other reports will examine the management of the agency’s staff during the pandemic and the security and controls related to the agency’s claims handling and management software.

The Detroit News previously reported the Federal government warned Michigan and other Midwestern states in May 2020 that some states had “seriously cut back” on implementing Pandemic Unemployment Assistance, an unemployment program for people who did not qualify for typical unemployment.

Federal regulators during a review of the state’s program in December revealed that Michigan, when developing its PUA program in the spring of 2020, had included four criteria for assistance that were not allowed under. of the CARES law. The state also ruled out three qualifiers that should have been available to people requesting PUA money.

Federal officials informed senior UIA officials in January of the problem and issued a formal notice in February.

The state waited until the end of June to begin issuing nearly 648,100 notices to claimants who needed to recertify under the new criteria and possibly reimburse the money they received, sparking a wave of confusion and panic among claimants. Whitmer said she would seek waivers for everyone affected by the agency’s error.

Emails published Tuesday in The News indicate that federal regulators contacted the state of Michigan on March 30, May 25 and July 12, reminding the state of the incorrect qualifiers and requesting updates on whether the qualifiers had been corrected.

The March 30 and May 25 emails requested additional documentation to show the state removed unapproved qualifiers and identified the number of claims affected. July 12, emailed again to check for updates and state work to rectify the issue.

“The response within 45 days was expected on Friday, July 9, 2021,” wrote Jeffery B. Haluska, unemployment insurance program specialist for the US Department of Labor.

“What is the status of outstanding discoveries? ” He asked.

The state responded that it would work to provide him with an update that day.

eleblanc@detroitnews.com