Michigan Audit: How Unemployment Mistake Leads to Overpayment of $3.9B

A total of $3.9 billion in overpayments was found to have been made to 347,437 claimants whose eligibility was later determined not to be valid. — This is “because the improper payments were the UIA’s fault.”

Currently, the agency is totaling up the overpayments, and it is likely to surpass the estimate of $3.9 billion, according to the auditor.

The Audit disclosed that Steven Gray, former director of the Unemployment Insurance Agency, discussed the risk of implementing immediate eligibility criteria for federal unemployment benefits with the office of Gov. Gretchen Whitmer latest April 2020, well before the state had to withdraw those eligibility prerequisites and ask them to recertify.

later, the error led to the mailout of about 648,100 notices that warned people they might have to return the money they had received this summer for recertifying their eligibility.

Those overpaid because of the state error received waivers from the Department of Labor later.

Currently, over 3.5 million Michigan residents have earned unemployment benefits totaling $39 billion since March 2020.

The audit notes that Gray formulated a slide show in April 2020 that summarized the advantages and disadvantages of “paying ASAP and establishing eligibility in parallel”

Gray presented the slides to senior staff at the UIA and Department of Labor and Economic Opportunity including the Executive Office of the Governor.

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

“The slide deck also stated, ‘This means we have a choice between speed and overpayment risk’ and identified the relevant population at 190,000 claimants at the time,” the audit said.

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According to the audit, Gray informed senior officials of the risk, while also stating the former director made decisions “unilaterally.” Gray resigned from his position in November 2020.

After deciding on eligibility criteria, the state agency allowed “individuals without any prior attachment to the workforce and who may have been unemployed for reasons unrelated to COVID-19” to be paid federal benefits, the audit announced.

Julia Dale, director of the Unemployment Insurance Agency, said on Thursday the agency admired the findings of the audit and was already attempting to rectify some of the problems before the audit.

“The audit looked back at our operations at a time when, as a consequence of the pandemic, the agency was standing up new and complicated federal programs while processing hundreds of thousands of claims every week, shifting nearly our entire staff to remote operations, and simultaneously responding to unprecedented levels of sophisticated, criminal efforts to defraud the agency,” Dale said.

Michigan Rep. Steve Johnson said in a Thursday statement that “rampant ineptitude” at the Unemployment Insurance Agency led to delays and confusion for many Michigan residents forced out of work during the pandemic. The Wayland Republican, who has held a series of hearings before the House Oversight Committee on UIA challenges, said he hopes the agency can improve.

“These findings provide concrete proof that a pivotal arm of Gov. Whitmer’s administration failed when people needed it most,” Johnson said. “This was a state mistake with their criteria, not a mistake made by claimants. Worse yet, UIA continued down a path they were told was incorrect. “

Thursday’s audit revealed that the agency was unable to explain its rationale for including eligibility requirements with no link to federal guidance or why it didn’t fix the issue when the U.S. Department of Labor identified it in June 2020, the audit said.

As of June 2020, the U.S. Labor Department informed the government agency of “urgent” and “critical” problems concerning the unauthorized criteria it adopted for failure to verify unemployment claims that whether claimants were required to self-certify.

“UIA continued to include the four unauthorized eligibility criteria on its forms and sent conflicting documentation to the USDOL,” the audit said. “On July 1, 2020, UIA indicated it removed the unauthorized eligibility criteria, and on July 16, 2020, UIA indicated it had not.”

It was reported to auditors that the federal department approved the state agency’s PUA process on July 17th, 2020, “under the impression that UIA was reviewing the non-COVID-19 reasons for eligibility. However, UIA was not.

In September 2020, the federal department informed states to fix problems with eligibility.

UIA further began modifying the program but continued to apply the four unauthorized eligibility criteria until March 2021.

After a meeting with federal officials on Jan. 6, the state removed the criteria, which was part of their review of the state system.

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Despite agreeing with Thursday’s audit findings, the report noted that the criteria were imposed at a time when the agency was overwhelmed with historical claims, attempting to avoid widespread fraud attempts and implementing federal programs.

In the audit, the agency reported that eight of the 11 findings reported after the federal review in January have been corrected.

Ultimately, the audit determined that the agency’s efforts had been “not effective” and uncovered two serious problems, including an improper “tone at the top” in regards to the agency’s internal controls on pandemic unemployment benefits; and incorrect eligibility guidelines and pauses in corrective action.

“UIA informed us that it bypassed established procedures requiring approvals from key UIA personnel when developing its PUA application and certification criteria due to the urgency to make the application available in response to the pandemic,” the audit asserted.

No documentation was submitted to show the process used to develop the criteria, and the agency “was unable to demonstrate who was involved with the decisions and any rationale to inappropriately expand PUA eligibility criteria,” the audit announced.

The report released by the Office of Auditor General on Thursday is the first in a series of four planned for release over the subsequent months.

In the next report, expected to be published in early 2022, the agency will explain how it handled claims during the pandemic and how it communicated with claimants during that period.

In subsequent reports, the agency will examine its personnel management at the lockdown plus management software’s security and controls.

According to previous reports from the Detroit News, the federal government warned states in May 2020 that certain states had “seriously cut corners” in implementing the pandemic unemployment assistance program — a program designed for jobless people who do not qualify for unemployment benefits.

During a federal review of Michigan’s PUA program in December, federal regulators found the Michigan state in the PUA program, which will begin in spring 2020, included four qualifying characteristics that are not certified under CARES.

Furthermore, the state had excluded three qualifying factors that were supposed to be available to applicants who applied for PUA money.

UIA staff were notified of the issue by federal officials in January and formal notice was issued in February.

Nearly 648,100 notices were sent out by the state in late June to claimants requiring them to recertify under the new criteria and potentially repay the money they had already received.

In response to the agency error, Whitmer said she would request waivers for all affected.

Emails obtained by The News on Tuesday reveal that federal regulators contacted Michigan three times in March, May, and July, giving Michigan a reminder about the incorrect qualifiers. The News also requested to know if the errors were corrected or not.

In emails that were sent on March 30 and May 25, the state requested additional documentation to establish that the state had withdrawn the unapproved qualifications and identify the number of claims affected.

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Updates and the state’s work to rectify the issue were again checked on July 12.

“The 45-day response was due Friday, July 9, 2021,”

Jeffery B. Haluska, an unemployment insurance program specialist for the U.S. Department of Labor, stated

“What is the status of the outstanding findings?” he asked.

He was told that an update would be provided on that day by the state.

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