Lawmakers Push Unemployment Agency Reform After $3.9 Billion in Overpayments

Michigan’s Unemployment Insurance Agency issued roughly $3.9 billion in benefits to people who were later deemed ineligible after a series of mistakes and mismanagement during an unprecedented influx of applicants, according to a state audit released in late November.

The UIA previously came under fire for asking more than 600,000 people to recertify their unemployment benefits after a discrepancy between federal eligibility requirements and the state’s criteria — in particular for contract and freelance workers made newly eligible for unemployment insurance during the pandemic.

Now the agency is being scrutinized by lawmakers again. 

It’s the target of a package of legislation following a report from Michigan Auditor General Doug Ringler that found that more than 347,000 — about 53.6 percent — of the people previously deemed ineligible were in fact not eligible for benefits, but received them anyway.

The state is still working on determining an exact figure on the extent of the mistake. 

At the time, the agency was also facing criticism for taking too long to issue benefits to people after many lost employment as a result of the pandemic and went weeks before receiving benefits.

“The Unemployment Insurance Agency was tested by a once-in-a-lifetime crisis, and while our staff is justifiably proud of its accomplishments, we also must use this as an opportunity to evaluate and improve,” said UIA Director Julia Dale in a statement. “That’s why I appreciate the Office of Auditor General’s perspective on improving the Unemployment Insurance Agency’s processes and internal controls. Prior to any independent audit findings, UIA initiated and implemented changes and the agency will continue to identify ways it can meet the (Auditor General’s) recommendations.”

Between March 15, 2020 and Sept. 27, the UIA paid $38.9 billion to people from 5.4 million claims, including for expanded unemployment benefits for freelance and contract workers. Much of the funding came from the federal government through previous pandemic aid packages.

Still, the issue is presenting an opening for lawmakers to push a package of bills meant to reform the agency. 

Among the proposed changes, the plan would create a citizen advocate to help people find aid navigating the UIA, create an agency ombudsman, form substantial new reporting requirements within the agency and shorten the amount of time it takes to reevaluate a decision on someone’s benefit application.

According to the Michigan Chamber of Commerce, the reform proposals include a bill that would prohibit the state from passing along costs associated with fraudulent claims to the state unemployment trust fund, which employers pay into. It would also add new requirements for people seeking unemployment insurance.

“This is an opportunity to have someone whose focus is navigating a confusing government system,” bill sponsor Rep. Jack O’Malley, R-Lake Ann, told The Detroit News.

The bills received committee testimony in early December and hearings are expected to continue into January before the plan progresses, according to the Chamber.

The UIA was dragged for previously including eligibility questions that didn’t match the federal government’s, leading to confusion and fear for people who didn’t know whether they would have to repay the benefits. Gov. Gretchen Whitmer assured people that wouldn’t happen, and the agency is unlikely to reclaim any of the overpayments because they weren’t the fault of applicants, according to the audit.

“A variety of actions and inaction by UIA’s senior leadership during the COVID-19 pandemic contributed to a poor control environment,” the audit said, pointing to the “tone at the top.”

“Those actions directly contributed to the creation of invalid (public unemployment assistance) application and certification processes and UIA’s failure to timely or appropriately address issues pointed out by the U.S. Department of Labor (USDOL) and UIA staff,” the audit continued.

The UIA has since had two different directors.

State Rep. Matt Hall, R-Marshall, said in a statement he requested the audit as previous chairman of the House Joint Select Committee on the COVID-19 Pandemic to find out whether the agency’s messaging matched reality.

“For nine months, the agency continued to make payments using qualifications they knew the U.S. Department of Labor didn’t approve and that those payments could be going out to people who may have been unemployed for reasons unrelated to COVID-19,” Hall said in a statement. “Almost $4 billion of overpayments were made because of this faulty eligibility criteria.

“UIA slow-walked corrective action, despite the problem being deemed crucial and urgent, and sent misleading information to the Department of Labor as the Department told them to comply with the CARES Act,” Hall continued.

The Republican lawmaker added that the audit “revealed an ill-fated plan” to prioritize speed over accuracy — getting money out to claimants quickly at the cost of focusing on whether the right people were getting payments.

In testimony to the Joint Oversight Committee last week, UIA director Dale pointed to numerous changes that have been made within the agency. That includes adding more resources to internal control divisions, changes to organizational structures, adding new experts to help the management team and doing better at documenting and maintaining records of executive decisions, among other corrections.

“UIA is implementing program controls and processes based on the OAG’s audit and will continue to refine those processes as the agency moves forward with its priorities of establishing a level of care, expertise and training to ensure unmatched excellence in customer service; strengthening and maintaining stakeholder relationships; and taking important steps to seek, develop and retain top talent,” Dale said.