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Office of the Auditor General
Performance Audit Report
Fraud and Investigation Activities
Unemployment Insurance Agency
Department of Labor and Economic Opportunity
December 2023
State of Michigan Auditor General
186-0320-22 Doug A. Ringler, CPA, CIA
The auditor general shall conduct post audits of financial
transactions and accounts of the state and of all branches,
departments, offices, boards, commissions, agencies,
authorities and institutions of the state established by this
constitution or by law, and performance post audits thereof.
The auditor general may make investigations pertinent to
the conduct of audits.
Article IV, Section 53 of the Michigan Constitution
Report Summary
Performance Audit Report Number:
186-0320-22
Fraud and Investigation Activities
Unemployment Insurance Agency (UIA) Released:
December 2023
Department of Labor and Economic
Opportunity (LEO)
UIA's Investigations Division (ID) promotes and maintains the integrity of the
unemployment insurance (UI) program through prevention, detection, investigation,
establishment, recovery, and prosecution of UI overpayments made to claimants. As of
September 2022, ID consisted of 38 full-time staff and 38 limited-term staff scheduled
through September 30, 2023. ID is composed of the Benefit Payment Control (BPC) and
two investigation sections.
From March 15, 2020 through December 31, 2022, UIA paid $40.0 billion in
unemployment compensation (UC) claims to 2.5 million individual claimants. UIA
confirmed intentional misrepresentation for 2,314 claimants between January 2020 and
December 2022 and reported 158 individuals were charged with UI fraud as of July 31,
2023.
This audit report is the fifth and final of a series of audit reports on UIA claims processing
during and after the COVID-19 pandemic.
Audit Objective Conclusion
Objective: To assess the sufficiency of UIA's efforts to identify and investigate
Not sufficient
potential claimant fraud.
Agency
Material Reportable Preliminary
Findings Related to This Audit Objective Condition Condition Response
UIA undercalculated fraud penalties by at least 49.4%
because it did not address programming issues with its
Michigan Integrated Data Automated System. In X Partially agree
addition, the opportunity may exist for UIA to assess an
additional $840 million in fraud penalties (Finding 1).
Agency
Findings Related to This Audit Objective Material Reportable Preliminary
(Continued) Condition Condition Response
For the claims we reviewed, ID did not:
• Attempt to identify 70.0% of the individuals
filing UC claims using others' identities
(imposters).
• Attempt to recover 96.7% of related payments or
assess fraud penalties.
X Partially agree
• Refer 90.0% of the fraudulent claims to law
enforcement.
The three-year window for UIA to address fraudulent
payments excludes cases of suspected identity theft, and
therefore, UIA could still take action on these claims
(Finding 2).
Between January 2020 and October 2022, UIA made
$245.1 million in potentially improper payments to
individuals who were incarcerated, deceased, or residing
in long-term care facilities; UIA contract or LEO
employees; or those above and below the typical
X Partially agree
working age. UIA did not identify and/or took no action
to assess the appropriateness of these payments. UIA
paid at least $1.7 million to claimants even after
determining they were incarcerated or deceased
(Finding 3).
BPC did not always follow up with the nonresponsive
employers and claimants it identified in new hire
crossmatches. Also, it sometimes discarded or closed
X Partially agree
issues without conducting required investigation or fact
finding to determine the appropriateness of payments to
claimants who appeared to be ineligible (Finding 4).
Office of the Auditor General
201 N. Washington Square, Sixth Floor
Obtain Audit Reports Lansing, Michigan 48913
Online: audgen.michigan.gov Doug A. Ringler, CPA, CIA
Phone: (517) 334-8050 Auditor General
Laura J. Hirst, CPA
Deputy Auditor General
Doug A. Ringler, CPA, CIA
Auditor General
201 N. Washington Square, Sixth Floor • Lansing, Michigan 48913 • Phone: (517) 334-8050 • audgen.michigan.gov
December 27, 2023
Susan R. Corbin, Director
Department of Labor and Economic Opportunity
300 North Washington Square
Lansing, Michigan
and
Julia Dale, Director
Unemployment Insurance Agency
Cadillac Place
Detroit, Michigan
Director Corbin and Director Dale:
This is our performance audit report on the Fraud and Investigation Activities, Unemployment
Insurance Agency, Department of Labor and Economic Opportunity. This is the fifth and final
issued audit report in a series of performance audits of UIA.
Your agency provided preliminary responses to the recommendations at the end of our
fieldwork. The Michigan Compiled Laws and administrative procedures require an audited
agency to develop a plan to comply with the recommendations and to submit it to the State
Budget Office upon completion of an audit. Within 30 days of receipt, the Office of Internal Audit
Services, State Budget Office, is required to review the plan and either accept the plan as final
or contact the agency to take additional steps to finalize the plan.
We appreciate the courtesy and cooperation extended to us during this audit.
Sincerely,
Doug Ringler
Auditor General
Michigan Office of the Auditor General
186-0320-22
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Michigan Office of the Auditor General 4
186-0320-22
TABLE OF CONTENTS
FRAUD AND INVESTIGATION ACTIVITIES
Page
Report Summary 1
Report Letter 3
Audit Objectives, Conclusions, Findings, and Observations
Identifying and Investigating Potential Claimant Fraud 8
Findings:
1. Fraud penalties not accurately assessed. 10
2. Improvement needed to ID's identification of imposters and referrals
to law enforcement. 12
3. Improvements needed to UIA's claim data analysis
procedures. 14
4. Improvements needed to ID's new hire crossmatches. 18
Finding 1 Agency Preliminary Response and Auditor's Comments to Agency
Preliminary Response 20
Finding 2 Agency Preliminary Response and Auditor's Comments to Agency
Preliminary Response 22
Finding 3 Agency Preliminary Response and Auditor's Comments to Agency
Preliminary Response 26
Finding 4 Agency Preliminary Response and Auditor's Comments to Agency
Preliminary Response 28
Agency Description 30
Audit Scope, Methodology, and Other Information 31
Glossary of Abbreviations and Terms 36
Michigan Office of the Auditor General 5
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AUDIT OBJECTIVES, CONCLUSIONS,
FINDINGS, AND OBSERVATIONS
Michigan Office of the Auditor General 7
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IDENTIFYING AND INVESTIGATING POTENTIAL CLAIMANT FRAUD
BACKGROUND This audit report is the fifth and final in a series of audit reports on
Unemployment Insurance Agency (UIA) claims processing during
the COVID-19* pandemic.
The first four performance audits* focused on UIA's efforts to
establish eligibility criteria, manage personnel, process claims,
and assess IT controls. This audit focused on selected efforts of
UIA's Investigations Division (ID) to identify and investigate
potential claimant fraud during and after the COVID-19 pandemic.
We previously reported several internal control* deficiencies
which impacted UIA's overall fraud detection and prevention
efforts in our January 2023 performance audit report on Claims
Processing During the COVID-19 Pandemic (186-0319-21),
located at
audgen.michigan.gov/wp-content/uploads/2023/02/r186031921-3696.pdf.
Unemployment insurance (UI) claim fraud includes imposter
fraud* (claims filed with stolen identities), internal fraud (UIA
employee and/or UIA contractor staff), and intentional
misrepresentation* (an act of willful misrepresentation or
nondisclosure of a material fact for the purpose of obtaining
benefits to which the claimant is not entitled or preventing benefit
payments where an individual is entitled).
UIA developed and implemented its Fraud Manager software in
2018 and uses it to analyze claims at filing and certification and
identify potential UI claim fraud. UIA creates fraud investigation
cases in the Michigan Integrated Data Automated System*
(MiDAS) from fraud referrals or from applying risk criteria to
claims identified by Fraud Manager or the federal Integrity Data
Hub.
From January 1, 2020 through December 8, 2022, UIA created
300,000 fraud referrals in MiDAS and 2.1 million fraud
investigation cases. As of December 8, 2022, UIA closed 99.9%
of the fraud referrals after manual review. UIA closed 1.5 million
(72.7%) of the fraud investigation cases in part based on how it
programmed MiDAS to automatically resolve simultaneously
created identity verification cases. Deloitte previously reported on
issues regarding UIA's handling of identity verifications at the
onset of the COVID-19 pandemic in its November 2020 forensic
report. UIA had not made payments related to the claims for
nearly 80% of the approximately 600,000 open fraud investigation
cases as of December 8, 2022.
On August 31, 2020, the U.S. Department of Labor (USDOL)
issued Unemployment Insurance Program Letter (UIPL) No. 28-
20 to remind states of their roles and responsibilities in addressing
fraud in the UI system and the techniques and strategies available
to assist states with their fraud management operations. This
* See glossary at end of report for definition.
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UIPL also provided states with funding to help prevent and detect
fraud and likely identity theft. The funding was also intended to
help states recover fraud overpayments in the Pandemic
Unemployment Assistance (PUA) and Pandemic Emergency
Unemployment Compensation (PEUC) programs. Michigan was
allocated $2,041,200 and $388,800 for PUA and PEUC efforts,
respectively, which it used to hire 38 limited-term staff within ID.
AUDIT OBJECTIVE To assess the sufficiency of UIA's efforts to identify and
investigate potential claimant fraud.
CONCLUSION Not sufficient.
FACTORS • Material condition* related to UIA's undercalculation of fraud
IMPACTING penalties assessed on claims with intentional
CONCLUSION misrepresentation (Finding 1).
• Material condition related to IDʹs procedures for identifying
imposters and making required referrals to law enforcement
(Finding 2).
• Reportable condition* related to UIA's claim data analysis
procedures to identify and recover potential unemployment
compensation (UC) benefit overpayments (Finding 3).
• Reportable condition related to ID's processes for
investigating leads identified in its crossmatches of new hire
databases (Finding 4).
• Over the course of the audit period, UIA created new daily and
weekly reports in response to the COVID-19 pandemic, which
ID monitored to enhance fraud detection and prevention.
• UIA's Fraud Manager software flagged 1.4 million claims as
potentially fraudulent from January 1, 2020 through December
8, 2022. In addition, UIA's use of the Integrity Data Hub
flagged 229,000 additional claims as potentially fraudulent
during this same period. UIA sent identity verification
nonmonetary issues to claimants for these flagged claims.
Our review of MiDAS claim application data determined Fraud
Manager generally flagged claims meeting its business rules.
• UIA closed 99.9% of fraud and identity theft referrals created
from January 1, 2020 through December 8, 2022. During our
review of a random sample of 100 fraud referrals, we did not
identify significant issues with how UIA closed the fraud
referrals.
* See glossary at end of report for definition.
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FINDING 1 UIA did not accurately assess fraud penalties on claims when it
determined intentional misrepresentation occurred. We estimate
UIA undercalculated penalties on these claims by at least 49.4%.
Fraud penalties not In addition, the opportunity may exist for UIA to assess an
accurately assessed. additional $840 million in fraud penalties.
Section 421.54(b)(i) of the Michigan Compiled Laws allows UIA to
recover the UI payments made to claimants based on fraudulent
claims and monetary damages in the same amount for the first
offense and 1.5 times for all subsequent offenses. UIPL No. 20-
21, issued in May 2021, requires states to assess a monetary
penalty of at least 15% to fraud-related overpayments from
Coronavirus Aid, Relief, and Economic Security (CARES) Act UC
programs. Fraud includes instances where an individual has
knowingly made, or caused to be made by another, a false
statement or representation of a material fact or knowingly has
failed, or caused another to fail, to disclose a material fact.
From January 1, 2020 through December 31, 2022, UIA issued
3,246 determinations of intentional misrepresentation on 2,800
individual claims, impacting 2,314 individual claimants. UIA
established fraud totaling $16.9 million in principal and calculated
$5.6 million in penalties for the 3,246 determinations.
We selected a random sample of 25 of the 3,246 intentional
UIA had not misrepresentation determinations. We reviewed the 25
assessed or determinations in MiDAS and UIA's fraud penalty calculations,
assessed incorrect totaling $45,770, and noted UIA had not programmed MiDAS to
fraud penalties on allow for assessment of the requisite fraud penalties on CARES
21 (84.0%) of 25 Act UC programs including PUA, PEUC, and Pandemic
sampled intentional Unemployment Compensation*. As a result, UIA had not
misrepresentation assessed or incorrectly assessed fraud penalties on 21 (84.0%) of
cases. 25 sampled intentional misrepresentation determinations.
Specifically:
a. UIA did not assess fraud penalties on 8 (32.0%) of 25
intentional misrepresentation determinations for claims
under the CARES Act UI programs. The fraud penalties
should have totaled at least $20,456 for the 8
determinations.
b. UIA undercalculated fraud penalties for 13 (52.0%)
determinations that included regular UI, extended benefits,
and CARES Act UC programs, primarily because MiDAS
accounted for only the regular UI and extended benefits
portion of those claims. The fraud penalties for the 13
determinations should have totaled at least $59,744
compared with UIA's calculations totaling $36,126.
In addition, for 5 of the 21 determinations noted in parts a. and b.,
UIA stated a separate MiDAS programming issue precluded it
from establishing fraud penalties for the weeks it previously
established restitution and not yet made the determination of
intentional misrepresentation.
* See glossary at end of report for definition.
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Based on the error rate for the random sample of 25
determinations, we estimate UIA should have established fraud
penalties totaling at least $11.0 million rather than $5.6 million for
the 3,246 determinations of intentional misrepresentation. UIA
created a Solution Quality Request (SQR) to update the
programming in MiDAS to allow for fraud penalties on CARES Act
UC programs including PUA, PEUC, and Pandemic
Unemployment Compensation, initially in March 2022, and
revised the SQR in June 2022. UIA informed us it had not
completed the SQR as of December 2023 because of other
resource constraints and priorities, including needing significant
resources to make changes in MiDAS in response to an Injunctive
Order stemming from ongoing litigation. In addition, UIA informed
us it initially did not program MiDAS to calculate penalties for the
CARES Act claims because guidance from USDOL at the onset of
the pandemic indicated fraud penalties were not assessable for
the federal claims.
In its December 2021 report, Deloitte estimated UIA paid $5.6
Applying only the billion in fraudulent UC claims, the majority of which UIA informed
15% required us were PUA claims. If applying the 15% required minimum
minimum penalty, penalty, we conservatively estimate fraud penalties for PUA
we conservatively overpayments could be $840 million. However, because of the
estimate fraud resource constraints noted above, UIA informed us it had not fully
penalties for PUA implemented corrective action to address internal control
overpayments could deficiencies we reported in our January 2023 report concerning
be $840 million. fraudulent PUA claims, and as a result, it had not yet identified
most of the claims in Deloitte's estimate. Also, as of December
2023, UIA had awarded a contract and informed us it had begun
the process of replacing MiDAS and expects the new system to
be fully operational sometime in 2025.
We consider this finding to be a material condition because of
UIA's failure to take timely corrective action to assess accurate
fraud penalties on claims it determined as fraudulent.
RECOMMENDATION We recommend that UIA address the programming issues in
MiDAS to help ensure it accurately assesses fraud penalties on
claims in which intentional misrepresentation occurred.
AGENCY UIA partially agrees with the Finding. Given its length, the
PRELIMINARY preliminary response and our auditor's comments are presented
RESPONSE on page 20.
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FINDING 2 UIA's ID needs to improve its procedures for identifying
individuals who filed claims using others' identities (imposters)
and referring them to law enforcement. This would help facilitate
Improvement needed the recovery of fraudulent benefit payments and related penalties,
to ID's identification of while providing the opportunity for criminal prosecution.
imposters and
referrals to law The Michigan Employment Security (MES) Act requires that when
enforcement. UIA identifies an imposter claim, it shall attempt to recover UC
benefits paid to the imposter, plus applicable fraud penalties. In
addition, UIPL No. 04-17, Change 1, issued in August 2021,
requires states to refer potential fraud to USDOL Office of
Inspector General (OIG) when it exceeds $10,000 or involves
multiple claimants. UIA can also refer suspected fraud to the
Department of Attorney General, which, in 2022, received over
$4,070,000 to employ attorneys and support staff to investigate
and prosecute unemployment fraud in Michigan.
When ID completes a fraud investigation and determines UIA paid
benefits to an imposter, it creates a repayment (proxy) claim to
move the payments from the victim's social security number to the
proxy claim and designates the claim as identity theft. This allows
the victim to file an unemployment claim, if needed, and UIA to
issue an adjusted federal 1099-G income tax form, as needed.
During the fraud investigation, according to UIA Manual Section
6690, ID regulation agents have discretion to determine if they will
submit the case for criminal prosecution.
From January 1, 2020 through December 31, 2022, UIA created
19,121 proxy claims, totaling $106.3 million.
We selected a sample of 30 of the proxy claims totaling $335,000,
including the 5 highest claim amounts, and noted:
a. ID neither attempted to identify who submitted 21 (70.0%)
of the fraudulent claims totaling $177,000 nor attempted to
recover payments or assess fraud penalties for 29 (96.7%)
of the claims totaling $325,000.
b. ID did not refer 27 (90.0%) of the fraudulent claims to
UIA did not refer USDOL OIG or the Department of Attorney General,
90% of the sampled totaling $286,000, which included 11 (40.7%) claims
fraudulent claims to totaling $202,000 that exceeded the $10,000 mandatory
USDOL OIG or the referral threshold. ID stated its practice was to refer
Department of suspected fraudulent claims only after it identified persons
Attorney General, of interest and that it referred hundreds of matters to the
totaling $286,000, USDOL OIG and the Department of Attorney General
including 11 claims during our audit period. However, neither USDOL OIG nor
totaling $202,000 the Department of Attorney General required the
that exceeded the identification of a person of interest. In addition, ID stated
mandatory referral the USDOL OIG and Department of Attorney General
threshold. informally communicated thresholds for referrals of
$250,000 and $50,000, respectively, because of the high
volume of fraudulent claims during the COVID-19
pandemic.
Michigan Office of the Auditor General 12
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ID had not established sufficient procedures related to the factors
it considers when deciding the extent of its investigation efforts for
imposter claims. For example, its procedures did not indicate
when regulation agents should issue subpoenas for bank records
or internet protocol address information that could be helpful in
identifying the imposters. ID staff informed us they did not have
sufficient resources to conduct, or thoroughly conduct,
investigations of all imposter claims. They believed it was unlikely
they would be able to identify imposters or collect many fraudulent
payments UIA made during the COVID-19 pandemic for several
reasons, including the high volume of claims and manner in which
criminals orchestrated the acts of fraud. However, ID's
procedures did not require regulation agents to document their
rationale on a case-by-case basis within their investigation notes.
ID informed us it prioritized its efforts toward minimizing the
impact on identity theft victims.
We consider this finding to be a material condition because the
three-year window for UIA to address fraudulent payments under
the MES Act excludes cases of suspected identity fraud.
Therefore, UIA could still attempt to identify imposters, make
referrals to law enforcement, and attempt recovery of the
fraudulent payments and related penalties. In addition, the
federal government announced plans and initiated legislation to
allow additional time and resources for addressing COVID-19
pandemic-related UI fraud, including extending the statute of
limitations for criminal charges or civil actions from 5 to 10 years
and financial incentives for states to recover fraudulent
overpayments.
RECOMMENDATION We recommend UIA improve its procedures for identifying
imposters who committed identity theft and referring them to law
enforcement.
AGENCY UIA and LEO partially agree with the Finding. Given its length,
PRELIMINARY the preliminary response and our auditor's comments are
RESPONSE presented on page 22.
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FINDING 3 UIA needs to improve its procedures to fully analyze and review
MiDAS data to help identify payments needing further review or
take action to recover benefits improperly paid to deceased,
Improvements needed incarcerated, and other claimants not normally eligible for UC
to UIA's claim data benefits.
analysis procedures.
UIPL Nos. 16-20, 23-20, and 28-20 address program integrity and
require states to take reasonable and customary precautions to
deter and detect fraud, including data mining, data analytics, and
various crossmatches. In addition, the UIPLs require states to
investigate fraudulent activity, establish and recover fraud
overpayments, and pursue criminal and civil prosecution to deter
fraud.
ID's Benefit Payment Control (BPC) conducted several USDOL
mandated and strongly recommended activities to identify
potentially improper payments, including analyses between
MiDAS claims data and data from independent sources such as
the National Directory of New Hires and the Social Security
Administration. MiDAS automatically facilitated further
adjudication to establish eligibility and/or create fraud
investigations on suspicious claims. In some instances, MiDAS
stops or withholds payments pending additional adjudication or
investigation. Based on the significant increase in improper and
fraudulent claims related to the federal UC programs implemented
at the onset of the COVID-19 pandemic in March 2020, UIA
entered into agreements with the Michigan Department of Health
and Human Services (MDHHS) and Michigan Department of
Corrections (MDOC) in September 2020 to analyze MiDAS claims
data with death records and incarceration data, respectively.
We obtained data from MDHHS, MDOC, and UIA personnel
records. We compared this data with MiDAS claims and other
data from January 2020 through October 2022 to identify
individuals who were incarcerated, deceased, long-term care
facility residents, UIA contractors, Department of Labor and
Economic Opportunity (LEO) employees, and claimants outside
the typical age ranges who claimed UC benefits.
We identified the following potentially improper payments for:
a. Incarcerated, deceased, or claimants residing in long-term
care facilities:
Potential Improper
Number of Payments
Type of Data Analysis Claimants (in millions)
Incarcerated 4,959 $35.6
Deceased 3,002 $19.8
Long-term care facility residents 1,227 $ 6.5
In October 2020, UIA's ID performed data analyses to
identify incarcerated and deceased claimants and
produced results similar to ours. ID requested UIA's
Michigan Office of the Auditor General 14
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Agency Services Division create SQRs to stop payments
to the claimants, initiate automatic fact finding, and
automate the reviews to occur periodically. Although it
appeared the Agency Services Division created SQRs for
these requests in November 2020, these SQRs were
never completed and were either closed without action in
November 2021 after the expiration of the federal
programs (PUA and PEUC) or still in process as of March
2023. UIA performed data analyses for incarcerated and
deceased claimants later in our audit period but did not
take meaningful action to follow up on the majority of the
matches because it mistakenly believed the requisite fact
finding would soon be automated. UIA paid at least
$1,710,000 to claimants after identifying them in the
analyses.
UIA was not required to and did not analyze MiDAS claims
data with MDHHS data of individuals residing in long-term
care facilities. Claimants residing in a long-term care
facility are likely not able and available for work and,
therefore, are likely ineligible for UI benefits. Establishing
an agreement with MDHHS to obtain this data and
periodically analyzing it would provide UIA another means
to prevent and detect UC fraud.
b. UIA contractor or LEO employees:
Potential
Type of Number of Improper
Employee Contractor Claimants Payments
Robert Half 1,800 $4,825,473
Accenture 32 73,918
UIA contractor Michigan Works!
Agency 20 269,981
Provalus 13 67,859
Total 1,865 $5,237,231
LEO employee 168 $ 238,502
Total 2,033 $5,475,733
UIA's ID began reviewing Robert Half contractor
employees in mid-2021 and identified nearly 200
individuals claiming UC benefits while simultaneously
working at UIA. UIA stated its efforts were ongoing, and it
created nonmonetary issues and sent fact finding for these
individuals. UIA said it discarded many of the issues
without further review because Robert Half initially did not
respond to its inquiries or provide weekly payroll records,
and the MES Act requires a weekly breakdown of earnings
to establish overpayments related to unreported wages.
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We shared our employee data analysis results with UIA in
UIA paid potentially February 2023. UIA informed us it investigated the results
fraudulent benefit by reaching out to the contractors to obtain weekly wage
payments for 6 LEO records for the individuals and identified potentially
employees totaling fraudulent benefit payments for 6 LEO employees totaling
$46,000 and at least $46,000 and at least 282 contractors totaling $1.5 million.
282 contractors Also, it was still reviewing payments for an additional 5
totaling $1.5 million. LEO employees and 88 contractors totaling around
$500,000. For the remaining matches, UIA indicated
payments of $2.2 million were appropriate and $1.2 million
were improper for other reasons. We did not assess the
comprehensiveness or accuracy of UIA's review because
it occurred after our audit period.
c. Claimants above and below the typical working age:
Age Range of Claimants Under 16 or Over 80
Claimants Claims Claimants Payments
Under 14 161 158 $ 2,030,228
14 to 15 5,771 5,755 88,893,876
80 to 84 5,550 4,088 68,226,719
85 to 99 1,522 1,190 17,976,299
100 and over 89 79 592,106
Total 13,093 11,270 $177,719,227
The majority (83.8%) of these payments were for PUA
claims. UIA issued guidance to its staff in October and
December 2020 related to reasonable suspicions of fraud.
It advised in instances in which a claimant is 16 or younger
or 80 or older, a nonmonetary issue should be created on
the claim, triggering fact finding if the claimants did not
have proof of income or employment in Michigan. UIA
stated it did not perform any age-related analyses for PUA
claims. For other claims involving minors, which would
include 13 claimants under 16 years old in the preceding
table, UIA stated that although MiDAS is programmed to
generate employment-related questions during the claim
filing process, it did not follow up with the claimants to
ensure they were eligible for assistance.
We reported on the opportunity for UIA to improve its efforts to
fully analyze and review MiDAS data to help identify payments
needing further review in Finding 6 of our February 2016
performance audit of MiDAS. UIA had not implemented corrective
action and the circumstances of the COVID-19 pandemic
amplified this internal control deficiency.
Assessing needed enhancements and automations to UIA's data
analysis procedures to identify improper benefits and taking
necessary enforcement actions will help UIA prepare for its
upcoming claim software migration and be better prepared for
future spikes in claim volume. In addition, although the three-year
window for UIA to address fraudulent payments under the MES
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Act began to close for some claims in April 2023 (excluding
suspected identity fraud), the federal government announced
plans and initiated legislation to allow additional time and
resources for addressing COVID-19 pandemic-related UI fraud,
including extending the statute of limitations for criminal charges
or civil actions from 5 to 10 years and financial incentives for
states to recover fraudulent overpayments.
RECOMMENDATION We recommend UIA improve its claim data analysis procedures to
identify and recover UI benefits improperly paid to deceased,
incarcerated, and other individuals not normally eligible for UC
benefits.
AGENCY UIA partially agrees with the Finding. Given its length, the
PRELIMINARY preliminary response and our auditor's comments are presented
RESPONSE on page 26.
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FINDING 4 ID needs to improve its processes for investigating leads identified
in its crossmatches of new hire databases. Improved processes
will help UIA timely and appropriately identify and recover
Improvements needed overpayments, determine if overpayments resulted from
to IDʹs new hire intentional misrepresentation, and assess appropriate fraud
crossmatches. penalties, when applicable.
Title 42, section 653a of the United States Code requires
employers to promptly report the name, address, and social
security number of all newly hired, rehired, or recalled employees
to the State Directory of New Hires database, which is aggregated
into the National Directory of New Hires database.
UIA programmed MiDAS to interface with these databases weekly
and generate leads identifying claimants who may have received
benefits while employed. MiDAS also creates a "not unemployed"
nonmonetary issue for these leads and sends fact-finding forms to
the claimants and employers. IDʹs BPC is primarily responsible
for investigating these leads. BPC's investigation activities
include reviewing information claimants and employers submit in
response to fact-finding requests, following up with nonresponses,
making determinations regarding the appropriateness of the
payments, and determining whether claimant misrepresentation
was intentional or unintentional.
Beginning with the second quarter in 2020, UIA experienced a
significant increase in the volume of leads from the new hire
crossmatches primarily because of the newly created COVID-19
pandemic UC programs and the resulting significant increase in
claim volume. From January 1, 2020 through December 31,
2022, the new hire crossmatches resulted in the creation of
65,304 nonmonetary issues.
BPC had not investigated 33,272 (50.9%) of the 65,304 issues
related to $519.4 million paid to claimants. These issues were
outstanding from 4 to 999 days, averaging 316 days. BPC stated
these cases were not assigned to staff because of COVID-19
pandemic caseload backlogs. Although we did not estimate the
dollar amounts that may have resulted from BPC not investigating
claimants identified in its crossmatches, the importance of such
investigations is significant because BPC established
overpayments and fraud penalties totaling $29.7 million for 27.1%
of the issues it did investigate.
We reviewed a random sample of 25 of the 65,304 nonmonetary
issues. We determined 13 (52.0%) remained open, pending
investigation by BPC, as of December 31, 2022 despite UIA
receiving responses to fact-finding letters from 5 employers and 6
claimants related to 9 of the issues. BPC had not followed up with
the nonresponsive employers and claimants. We noted potential
overpayments resulted from claimants not reporting earnings and
voluntarily quitting their new employment, based on the
information UIA received for 3 of the 9 issues.
Michigan Office of the Auditor General 18
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For the 12 issues closed or discarded, we noted:
a. UIA discarded 3 (25.0%) issues without adjudication
because UIA programmed MiDAS to automatically discard
nonmonetary issues on previously denied claims.
Although UIA informed us it started the process of making
necessary changes to MiDAS in August 2022, as of March
2023, UIA had not resolved these programming issues.
b. BPC closed 2 (16.7%) issues after receiving employer
responses indicating the claimants voluntarily quit their
jobs. BPC established overpayments for weeks these
claimants had not reported their wages while employed.
However, BPC did not conduct further fact finding to
determine if it needed to establish additional
overpayments related to the $22,535 and $2,690 in benefit
payments UIA made after the employment separations.
c. BPC did not follow up with 6 (50.0%) nonresponsive
claimants and 1 (8.3%) employer, including 1 issue in
which neither the claimant nor employer responded, or
take required action against the nonresponsive claimants.
d. BPC improperly closed 2 (16.7%) issues with a "not
ineligible" determination despite not receiving any
response to fact finding from the claimant or employer.
Although overpayments were already established for all
weeks for these claims for other eligibility issues, BPC did
not have evidence required to determine the claimants
were "not ineligible." This determination precluded BPC
from concluding whether the claimants misrepresented
their employment status and if it was intentional.
BPC established overpayments for 5 (41.6%) of the 12 issues and
determined each to be unintentional misrepresentation. BPC only
requires a secondary or managerial review on nonmonetary
adjudication determinations involving intentional
misrepresentation.
Timely identification and follow-up of these items are critically
important because the MES Act prohibits UIA from issuing
(re)determinations on nonmonetary issues after three years from
the first payment of the benefit year for fraud and non-fraudulent
related issues.
RECOMMENDATION We recommend ID improve its processes for investigating leads
identified in its crossmatches of new hire databases.
AGENCY UIA and LEO partially agree with the Finding. Given its length,
PRELIMINARY the preliminary response and our auditor's comments are
RESPONSE presented on page 28.
Michigan Office of the Auditor General 19
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FRAUD AND INVESTIGATION ACTIVITIES
Unemployment Insurance Agency
Department of Labor and Economic Opportunity
Finding 1 Agency Preliminary Response and Auditor's Comments to
Agency Preliminary Response
This section contains UIA's preliminary response to Finding 1 and our auditor's comments providing further
clarification and context where necessary.
Finding 1: Fraud penalties not accurately assessed.
The preliminary response UIA provided for this finding included technical comments which were editorial in nature and did not
address substantive issues identified in the finding, methodology, conclusions, or recommendation. In accordance with
generally accepted government auditing standards, we included a summarized version of UIA's response below.
AUDITOR'S COMMENTS TO
AGENCY PRELIMINARY RESPONSE AGENCY PRELIMINARY RESPONSE
UIA partially agrees.
UIA stated with respect to the specific elements of this
finding, it has the following responses:
a. UIA agrees. UIA has not yet programmed MiDAS to
allow for the requisite fraud penalties on CARES Act
UC programs including PUA, PEUC, and PUC.
b. UIA agrees. UIA has not yet programmed MiDAS to
allow for the requisite fraud penalties on CARES Act
UC programs including PUA, PEUC, and PUC.
UIA stated its aging computer system has presented
tremendous challenges to UIA, to Michigan businesses, and
to workers who depend on the UI system.
In addition, UIA stated for UC benefit programs other than
CARES Act claims, when UIA received conflicting
information regarding a material fact, MiDAS was
programmed to allow for a stop payment indicator to be
applied and an applicable nonmonetary issue to be created
that established overpayments and fraud penalties, if
applicable. It would also send a fact-finding questionnaire to
resolve the conflict and potential intentional
misrepresentation.
UIA stated MiDAS was not programmed to allow it to do the
same for issues unique to CARES Act claims and could only
adjudicate fraud on CARES Act claims where the issue type
was remuneration, whether the worker was employed full
time or not unemployed, available, or able to work. These
are the cases in the selected sample where fraud
determinations are reflected on CARES Act claims. Because
MiDAS was not programmed to allow UIA to adjudicate
intentional misrepresentation based on, for example, issues
related to PUA eligibility on these claims (e.g., claimant
submitted false documents and made false statements
concerning PUA eligibility), MiDAS lacked the programming
to impose fraud penalties on related overpayments,
consistent with MCL Section 421.54(b) and UIPL No. 20-21,
Change 1.
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UIA stated for the better part of the last year, its Agency
Services Division has been working in partnership with the
Department of Technology, Management, and Budget
(DTMB), as well as developers from its present vendor to
make system changes consistent with an Injunctive Order
stemming from current litigation and that the necessary
system changes to halt collection activities impacted more
than 1.8 million claimants.
UIA stated despite the significant lift associated with this
Order, UIA has submitted an IT Solution Request (June
2022) to address the issues raised by the OAG. UIA further
stated the initial research has been done; the SQR is
currently going through a legal review and is expected to be
implemented upon completion of review within two months'
time. UIA also stated that in previous audits of UIA's
performance during the pandemic period, UIA has explicitly
documented the impact an aging system and vendor
dependence has had on its ability to respond efficiently and
effectively to necessary system changes.
UIA stated in May of 2022, the OAG completed an audit of
MiDAS and the Michigan Web Account Manager (MiWAM)
system, shedding light on the significant challenges
presented by the existing UIA database especially as it Our MiDAS report from May 2022 focused on UIA and
relates to necessary system changes. UIA further stated it is DTMB's internal control related to securing highly
hampered by an inability to implement changes quickly and confidential federal tax information, developing effective
efficiently to systems and processes, and it is for this very access controls, removing user access timely, adopting
reason UIA issued a request for proposal (RFP) to replace appropriate security benchmarks, improving security
the existing database, and this change is necessary to awareness training, and implementing more effective
ensure UIA has the best technology solution available when change controls. Our conclusions in the May 2022 report
serving Michigan workers and businesses. UIA further did not establish concerns with MiDAS, but rather
stated on November 15, 2022, it announced it chose a new identified the need for improved human intervention in
contractor to design and install a modern, innovative, user- the form of sufficient internal control and processes. UIA
focused UI computer system to replace MiDAS that will need to ensure it implements sufficient internal
prioritizes ease of access for workers and employers while control in its new system or similar deficiencies will likely
also streamlining jobless claims processing. Staff across continue to exist.
UIA are currently engaged in requirements and design
sessions necessary to implement the new system.
UIA stated the pandemic introduced a marked increase in
the number of remuneration and not unemployed cases open
for investigation, cases where intentional misrepresentation
is often found when an overpayment is established. These
matters pertain to regular State claims for unemployment
benefits drawn from the Michigan Trust Fund paid for by This information includes data outside the scope of this
taxes imposed on Michigan employers, whereas CARES Act audit and is not relevant to the fraud penalty calculation
claims were not paid for by taxes imposed on Michigan issues identified in the Finding. As noted in the Finding,
employers. For example, in calendar years 2018 and 2019, our review included a random sample of all 3,249 UIA
a total of 4,506 and 7,782 cases were opened for determinations of intentional misrepresentation from
investigation, respectively, with determinations issued January 1, 2020 through December 31, 2022, which
establishing $36,756 and $372,250 in fraud penalties. included State UI claims and CARES Act claims.
Contrast that with calendar year 2022 and calendar year-to-
date 2023, where a total of 14,899 and 30,938 cases were
opened for investigation, respectively, with determinations
issued establishing $3,941,645 and $12,474,874 in fraud
penalties.
Michigan Office of the Auditor General 21
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FRAUD AND INVESTIGATION ACTIVITIES
Unemployment Insurance Agency
Department of Labor and Economic Opportunity
Finding 2 Agency Preliminary Response and Auditor's Comments to
Agency Preliminary Response
This section contains UIA's and LEO's preliminary response to Finding 2 and our auditor's comments providing
further clarification and context where necessary.
Finding 2: Identification of imposters and referrals to law enforcement.
The preliminary response UIA and LEO provided for this finding included technical comments which were editorial in nature
and did not address substantive issues identified in the finding, methodology, conclusions, or recommendation. In
accordance with generally accepted government auditing standards, we included a summarized version of UIA's and LEO's
response below.
AUDITOR'S COMMENTS TO
AGENCY PRELIMINARY RESPONSE AGENCY PRELIMINARY RESPONSE
UIA and LEO partially agree and stated ID's efforts to
As noted in the Finding, UIA had not attempted to identify
identify who submitted fraudulent claims often ran into dead
who submitted 70.0% of the fraudulent claims we tested,
ends when the perpetrators involved international criminal and ID's procedures did not require regulation agents to
rings, syndicate organizations and State sponsored groups. document their rationale on a case-by-case basis within
UIA and LEO further stated, accordingly, they implemented their investigation notes.
the practice of immediately providing USDOL OIG all claims
information so USDOL OIG may pursue these claims as part
of its continued efforts. UIA and LEO stated that included as
part of the submission of claims data to the USDOL OIG For the exceptions noted in part b. of the Finding, UIA did
were claims flagged as potentially fraudulent, and in not provide evidence to support it identified for USDOL
essence, the USDOL OIG has received all the fraudulent OIG the potentially fraudulent claims we reviewed during
claims and could perform any additional investigative our audit. We will verify in a subsequent follow-up review
procedures to identify imposters who commit identity theft. the corrective action UIA took after our audit period. The
UIA and LEO indicated UIA recently sent a formal referral recent formal referral letter UIA and LEO referred to in
letter to the USDOL OIG reminding them of the mutually their response was dated December 12, 2023.
shared case tracker with the UIA as well as a list of the
referred cases should the USDOL OIG seek additional
prosecution opportunities.
With respect to the specific elements of this Finding, UIA and
LEO had the following responses:
This Finding relates to UIA's actions to address the
a. UIA and LEO agree and acknowledge that had there known fraudulent payments it made, rather than its fraud
not been a sequencing error introduced as a result prevention efforts. We reported on deficiencies in UIA's
of programming changes made to the proprietary internal control which impacted its fraud detection and
Fraud Manager program and other fraud mitigation prevention efforts in Finding 2 of our January 2023 audit
systems during system development for the new report. Many of the claims in our sample were paid over
pandemic assistance programs, these fraudulent many months, including after UIA identified and corrected
claims would have been flagged at claim filing, prior the sequencing error and reinstated rules in Fraud
to initial payment, by Fraud Manager or other fraud Manager.
prevention tools.
On December 29, 2021, Governor Whitmer issued
Executive Directive No. 2021-14 on preventing UI
fraud. Within the Executive Directive, the order was
given that UIA and LEO will consistently use Fraud
Manager, or similar technology, and must not
suspend its use for any reason without prior
approval from the Director of LEO.
Michigan Office of the Auditor General 22
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b. UIA and LEO agree and acknowledge the 11 claims
met the UIPL criteria but did not meet the thresholds
communicated by the USDOL OIG. Going forward,
UIA and LEO have a protocol in place to refer
matters to the USDOL OIG that exceed the $10,000
threshold. As reported in the most recent written
report submitted to the Michigan Legislature
regarding claims submitted by impostors, UIA and
LEO permitted $6,537 of benefits to be paid to
impostors in 2022. Total benefits paid in 2022 were
approximately $628 million.
UIA and LEO stated while UIPL No. 04-17 and then Change USDOL issued UIPL No. 04-17 Change 1, which clarified
1 require states to refer potential fraud to the USDOL OIG the $10,000 threshold, in August 2021, after the
when the suspected fraud exceeds $10,000 or involves significant increase of claims filed and known wide-scale
multiple claimants, these thresholds were not modified for fraud. Prior to this guidance, the threshold was $5,000.
unprecedented claim filing levels experienced because of the
worldwide pandemic. UIA and LEO further stated by
intentionally selecting 5 specific claims for examination in this
The OAG included the 5 largest claims to determine how
audit, from a population of repayment claims, the sample is
or if UIA addressed the most significant claim amounts.
not a true reflection of average intentional misrepresentation We also selected 25 other sample items randomly from
cases, because these cases were already identified as being the entire population of repayment claims during the audit
fraudulently made by criminal syndicates and international period. Random sampling eliminates bias by giving each
crime organizations. UIA and LEO also stated many of these data point (claim) in the population an equal chance of
matters can be directly attributed to United States Secret being selected, reducing the likelihood of certain data
Service Global Investigative Operations Center (GIOC), points being over or under represented in the sample.
May 14, 2020, GIOC reference No. 20-027-1 which alerted Selecting random and judgmental samples is a common
the USDOL and State Workforce Agencies to massive fraud auditing procedure and conforms with professional
against state unemployment insurance programs, auditing standards.
predominately carried out by a Nigerian fraud ring called
Scattered Canary. UIA and LEO stated they continue to
work to pursue bad actors and those who defrauded
Michigan workers and businesses, by prioritizing cases in a
manner that optimizes resources.
UIA and LEO stated as of October 2023, the ID acquired a
total of nearly 50 limited-term employees through at least
June 2024 to assist its permanent staff in reviewing and
closing identity theft cases needing work since the height of
the pandemic and in timely reviewing the persistent high
volume of new intentional misrepresentation cases
associated with newly filed claims. UIA and LEO further
stated staff will also verify overpayments on pandemic
unemployment assistance claims and seek restitution. UIA
and LEO stated the funding for many of these positions was
made possible through the award of a $2.6 million Integrity
Grant from the USDOL on September 13, 2023, and that
grant will also develop and maintain a dashboard within the
agency's system to enhance its reporting capabilities.
UIA and LEO stated to-date, they have referred 239 matters
to the USDOL OIG which has resulted in 162 individuals
being charged or sentenced. Many more matters are
pending from referrals made to the USDOL OIG. UIA and
LEO stated during the pandemic assistance period and
presently, the USDOL OIG is focused on very specific
matters given the finite resources available to combat the
over $76 billion of unemployment benefits that were likely
Michigan Office of the Auditor General 23
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paid nationally to fraudsters. For referrals from UIA and
We audited against criteria included in UIPL No. 04-17,
LEO, they stated their matters must exceed $250,000 or
Change 1, issued in August 2021, which required
there are other extemporaneous circumstances such as
referrals to USDOL OIG when suspected fraud exceeded
matters involving internal employees.
$10,000.
UIA and LEO stated in Section 301 of Public Act 61 of 2022,
the Michigan Legislature allocated $4,070,000 to the
Department of Attorney General beginning in fiscal year
ending September 30, 2022, "to employ attorneys and
support staff to investigate and prosecute unemployment
fraud in Michigan" with a tentative September 30, 2026,
completion date. This was consistent with Executive Order
No. 2021-16 (creating the Unemployment Insurance Fraud
Response Team) and Executive Directive No. 2021-14
(prioritizing enforcement of fraud cases). UIA and LEO
stated they paid the Department of Attorney General another
$1,097,144.40 or an average of $274,300 annually to combat
fraud during fiscal years 2020, 2021, 2022, and 2023.
Between January 1, 2020, and December 31, 2022, UIA and
LEO informed us they referred 21 fraud or identity theft
cases to the Department of Attorney General for criminal
investigation and prosecution and to date, they referred more
than 70 fraud or identity theft cases to the Department of
Attorney General for criminal investigation and prosecution.
UIA and LEO stated following its hiring of a Legal Advisor
and Legal & Compliance Bureau Administrator, UIA and
Department of Attorney General's Criminal Investigations
and Criminal Trial & Appeals divisions began jointly meeting
on a monthly basis in June 2023. UIA and LEO stated as a
result of those meetings, those divisions began providing UIA
with case status reports. UIA and LEO further stated they are
seeking to establish a memorandum of understanding
between UIA and the Department of Attorney General to
investigate and prosecute criminal UIA fraud since before
this audit's review period; and such an agreement will set
forth reporting/tracking/metrics, expectations for
communications at key stages of each investigation and
prosecution, and the need for Department of Attorney
General employees with direct system access to confidential
and sensitive UIA data to agree to standards for
safeguarding that data. UIA and LEO indicated UIA is
actively drafting such an agreement to make its expectations
of these two divisions of the Department of Attorney General
and their expectations of UIA staff clear and ensure UIA and
Department of Attorney General are working efficiently and
effectively to combat fraud and identity theft.
UIA and LEO stated they initiated the development of a
criminal referral standard operating procedure in 2023 that
sets forth how and when to refer fraud and identity theft
cases to either the Department of Attorney General, a local
prosecutor, or the USDOL OIG. UIA and LEO further stated
later in 2023, UIA began a new project with the Department
of Attorney General's Labor Division to use the assistance of
two assistant attorneys general to draft criminal fraud
investigation reports and issue subpoenas for investigative
records, provide training in collecting evidence and drafting
more effective investigation reports, and to commence civil
lawsuits to pursue restitution and unemployment fraud
penalties from claimants and employers.
Michigan Office of the Auditor General 24
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UIA and LEO stated UIA is establishing new partnerships
with criminal law enforcement agencies to audit, investigate,
and prosecute fraud being perpetrated by fictitious
employers or employers that misclassify workers as
independent contractors or report inaccurate information
concerning their employees.
While UIA and LEO stated they agree in part its investigative
procedures do not indicate when Regulation Agents should
issue subpoenas for bank records or internet protocol
address information, as procedures do not establish a
threshold or attributes that would require the submission of a
subpoena, they consider the extensive training,
investigations procedures, and general experience the ID
and Regulation Agents have enables them to exercise sound
discretion. UIA and LEO further stated they will ensure
rationale made by Regulation Agents is documented on a
case-by-case basis, and UIA will continue to refine its
standard operating procedures to include specific
circumstances and procedures for issuing subpoenas for
investigative records.
Michigan Office of the Auditor General 25
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FRAUD AND INVESTIGATION ACTIVITIES
Unemployment Insurance Agency
Department of Labor and Economic Opportunity
Finding 3 Agency Preliminary Response and Auditor's Comments to
Agency Preliminary Response
This section contains UIA's preliminary response to Finding 3 and our auditor's comments providing further
clarification and context where necessary.
Finding 3: Improvements needed to UIA's claim data analysis procedures.
The preliminary response UIA provided for this finding included technical comments which were editorial in nature and did not
address substantive issues identified in the finding, methodology, conclusions, or recommendation. In accordance with
generally accepted government auditing standards, we included a summarized version of UIA's response below.
AUDITOR'S COMMENTS TO
AGENCY PRELIMINARY RESPONSE AGENCY PRELIMINARY RESPONSE
UIA partially agrees. UIA stated it has already implemented We will review any corrective action UIA has taken since
nearly every recommendation listed in the finding. this audit in a subsequent follow-up review. UIA's
response does not address how it plans to identify and
UIA stated resolution of the crossmatch issue we identified in recover UI benefits improperly paid to deceased,
Finding 8 of our January 2023 report revealed multiple incarcerated, and other individuals not normally eligible
failures of the technical systems and processes. These for UC benefits. As noted in the Finding, UIA identified
failures existed outside of the scope of UIA staff oversight. some of these potentially improper payments as early as
These failures further highlight the challenges the current October 2020. In addition, we determined during the
MiDAS system presented and continues to present to both audit UIA granted overpayment waivers totaling $4.7
UIA and Michigan workers. million and $3.1 million to claimants it identified in the
incarcerated and deceased claimant crossmatches,
UIA indicated the OAG appropriately stated the UIA conducts respectively. UIA also granted overpayment waivers
USDOL mandated activities, and appropriately totaling $3.6 million for claims we identified in our
acknowledged UIA also utilizes the strongly recommended long-term care facility crossmatch.
BPC activities.
UIA also stated the OAG further acknowledged most of the
potentially improper payments occurred at the onset of the The OAG makes no assertion in this Finding that most of
COVID-19 pandemic during the time in which UIA had the potentially improper payments occurred at the onset
relaxed its fraud prevention controls and paid claims prior to of the pandemic. UIA appears to include statements
any Fraud Manager screening due to a MiDAS sequencing from its August 2023 response to a previous version of
error. the Finding that is no longer applicable. We shared the
revisions to this Finding with UIA in October 2023. When
With respect to the specific elements of this finding, UIA we pointed out to UIA during report processing it had not
provided the following responses: updated its response to reflect our revisions to the
Finding, UIA declined the opportunity to remove this
Regarding incarcerated or deceased individuals, UIA has statement.
completed all SQRs and fully-automated the process where
new and continued claims are crossmatched against death
and incarceration records.
The OAG makes no recommendation UIA enhance the
UIA disagrees with the recommendation to enhance SSA Social Security Administration (SSA) crossmatch in this
crossmatch to create SSA identity verifications. UIA has an Finding. UIA appears to include statements from its
effective identity proofing solution and identity verification August 2023 response to a previous version of the
procedures. Finding that is no longer applicable. We shared the
revisions to this Finding with UIA in October 2023. When
we pointed out to UIA during report processing it had not
updated its response to reflect our revisions to the
Finding, UIA declined the opportunity to remove this
statement.
Michigan Office of the Auditor General 26
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UIA disagrees with the recommendation to establish an The OAG does not make this recommendation in the
agreement with MDHHS to share data on long-term care Finding, but rather we simply state such an agreement
facilities. When claimants are in covered employment and with MDHHS to obtain this data and periodically
experience a separation from employment due to no fault of analyzing it would provide UIA another means to prevent
their own, their place of residence does not have an impact and detect UC fraud. As noted in the Finding, individuals
on their eligibility for benefits. residing in long-term care facilities generally would not be
eligible for UC payments. In addition, this vulnerable
UIA stated the OAG appropriately noted the MES Act population may be susceptible to individuals filing
requires a weekly breakdown of earnings to establish fraudulent UC claims on their behalf. During our audit
intentional misrepresentation related to unreported wages. period, UIA and Deloitte performed a similar review of
UIA further stated for instances where contractors and claims for individuals who resided in nursing homes,
employers did not or do not respond to its inquiries or which indicates a claimant's place of residence could
provide weekly payroll records, UIA is not able to establish have an impact on their eligibility for benefits.
intentional misrepresentation.
UIA stated it is critical to note it took measures well beyond
internal policy and procedure in attempts to procure weekly
breakdown of earnings from contractors. UIA informed us
these measures included getting the UIA Director involved as
part of extraneous and continuous efforts to get contractors
and employers to respond with needed information. UIA
further stated for matters involving UIA employees, there are
instances where employees have been separated from
employment.
UIA stated other wide-ranging reforms recently launched to
fight fraud include:
• Naming a Legal Advisor and head of the Legal and
Compliance Bureau to leverage collaborative
anti-fraud practices to effectively pursue bad actors.
• Creating the UIA Modernization Workgroup –
consisting of labor, business, and jobless advocates
– to advise UIA on significant improvements in how
it can better serve Michigan workers and employers,
including anti-fraud practices.
• Extending through June 2024 nearly 50 limited term
positions in the Fraud and Investigations Division,
with plans to hire at least 30 more.
• Implementing new ethics and security clearance
policies for employees and contractors.
Michigan Office of the Auditor General 27
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FRAUD AND INVESTIGATION ACTIVITIES
Unemployment Insurance Agency
Department of Labor and Economic Opportunity
Finding 4 Agency Preliminary Response and Auditor's Comments to
Agency Preliminary Response
This section contains UIA's and LEO's preliminary response to Finding 4 and our auditor's comments providing
further clarification and context where necessary.
Finding 4: Improvements needed to IDʹs new hire crossmatches.
The preliminary response UIA and LEO provided for this finding included technical comments which were editorial in nature
and did not address substantive issues identified in the finding, methodology, conclusions, or recommendation. In accordance
with generally accepted government auditing standards, we included a summarized version of UIA's and LEO's response
below.
AUDITOR'S COMMENTS TO
AGENCY PRELIMINARY RESPONSE AGENCY PRELIMINARY RESPONSE
UIA and LEO partially agree and acknowledge the significant
increase in the volume of leads from the new hire
crossmatches due to the implementation of newly created
federally funded pandemic programs and acknowledge
nearly half of the matters created during the period of review
remained open as of December 31, 2022, averaging 316
days. UIA and LEO further stated additionally, they are
required to make reasonable attempts to contact claimants
and employers who do not respond to fact finding requests
and reasonable attempts have been made on each of the
matters identified by the OAG.
With respect to the specific elements of this finding, UIA and
LEO provided the following responses:
a. UIA and LEO agree and acknowledge some
programming mistakes were made while creating
the federally funded pandemic programs. UIA and
LEO stated that they will continue to work to ensure
that all programming requirements for the federally
funded pandemic programs are resolved.
b. UIA and LEO disagree and stated BPC did not
improperly close these matters. UIA and LEO
stated UIA's policy suspended the adjudication of
new hire separations, and that the matters were The two exceptions we noted in part b. occurred outside
discarded in accordance with the policy. the time frame of UIA's policy suspension. In addition,
UIA's response representing the maximum overpayment
UIA and LEO stated that had the UIA policy allowed amounts does not address the UC benefits totaling
for adjudication of new hire separations and had $22,535 and $2,690 these claimants received after they
these two matters found the claimants to be voluntarily quit their new employment.
ineligible for benefits, the maximum overpayments
on these matters would have been $8 and $538.
c. UIA and LEO agree in part and stated while BPC
had not followed up with nonresponsive claimants
and an employer, part of the procedures on these
matters is to make reasonable attempts to contact
claimants and employers who do not respond to fact
finding requests. There is a three-year period to
adjudicate these matters. Since December 31, 2022,
Michigan Office of the Auditor General 28
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reasonable attempts have been made on each of
these matters.
d. UIA and LEO agree in part and stated while a
determination was issued of "not ineligible" on the
new hire crossmatch issue, these decisions were
influenced by both the lack of responses from
claimants and employers, and the other issues on
these claims that were adjudicated and established
an overpayment. UIA and LEO further stated a
finding of "ineligible" for the new hire crossmatch
issue would not have increased the overpayment
amount already established on these claims.
UIA and LEO stated they have continued to work
expeditiously through these matters and for new hire
crossmatches and similar crossmatches, they have a three-
year period in which they can issue a determination. UIA
and LEO further stated for the average case of 316 days,
they still have 779 days as of December 31, 2022, to issue
determinations before the statute of limitations period
expires. UIA and LEO stated the three-year period for these
matters was established prior to the pandemic assistance
period, and these timeframes were not modified, and no new
timeframes were established for unprecedented claim filing
levels experienced because of the worldwide pandemic.
UIA and LEO stated to continue to address these matters,
they are currently in process of utilizing funding provided by
the USDOL to supplement the current team BPC section with
30 additional limited-term hires, and it will do everything in its
power to resolve all these matters within the three-year
period.
UIA and LEO also stated they acknowledge in some
instances UIA had not established metrics related to case The OAG makes no assertion in this Finding that
processing, including monetary issues, as noted in Observation 2 from our January 2023 performance audit
Observation 2 of the OAG's January 2023 performance audit report is applicable to new hire crossmatches. UIA
and disagrees with the assertion this finding is applicable to appears to have included statements from its August
new hire crossmatches. UIA and LEO stated the BPC 2023 response to a previous version of the Finding that is
section and its team of analysts and managers apply metrics no longer applicable. We shared the revisions to this
to these matters for prioritization and as an example of Finding with UIA in October 2023. When we pointed out
metrics utilized, matters with high dollar amounts, matters to UIA during report processing it had not updated its
with responses from claimants and employers, and matters response to reflect our revisions to the Finding, UIA
that are approaching the statute of limitations period are declined the opportunity to remove this statement.
prioritized and assigned for resolution.
Michigan Office of the Auditor General 29
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AGENCY DESCRIPTION
UIA's ID promotes and maintains the integrity of the UI program
through prevention, detection, investigation, establishment,
recovery, and prosecution of UI overpayments made to claimants.
As of September 2022, ID consisted of 76 staff, including 38
limited-term staff scheduled to work through September 30, 2023.
ID is composed of BPC and two investigation sections. BPC staff
are responsible for investigating crossmatch hits and completing
repayment claims when identity theft has been confirmed. The
investigation sectionsʹ tasks include the review of fraud referrals
from potential identity theft victims, anonymous tips, and internal
UIA referrals and completion of investigations generated from
fraud referrals, UIA's Fraud Manager software, and other sources.
According to data on UIA's public website, from March 15, 2020
through December 31, 2022, UIA paid $40.0 billion in UC claims
to 2.5 million individual claimants. UIA confirmed intentional
misrepresentation for 2,314 claimants between January 2020 and
December 2022 and reported 158 individuals were charged with
UI fraud as of July 31, 2023.
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AUDIT SCOPE, METHODOLOGY, AND OTHER INFORMATION
AUDIT SCOPE To examine UIA's efforts to identify and investigate potential
claimant fraud. We conducted this performance audit in
accordance with generally accepted government auditing
standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our
audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions
based on our audit objectives.
As part of the audit, we considered the five components of
internal control (control environment, risk assessment, control
activities, information and communication, and monitoring
activities) relative to the audit objectives and determined all
components were significant.
PERIOD Our audit procedures, which included a preliminary survey,
audit fieldwork, report preparation, analysis of agency
responses, and quality assurance, generally covered
January 1, 2020 through December 31, 2022.
METHODOLOGY We conducted a preliminary survey to gain an understanding of
UIA's processes and controls related to fraud detection,
prevention, and resolution in the UC programs. During our
preliminary survey, we:
• Reviewed the MES Act related to UC fraud.
• Reviewed applicable USDOL guidance in various
UIPLs.
• Reviewed UIA's guidance to its staff related to
investigation of claimant fraud.
• Reviewed UIA Manual sections related to identity
verification, intentional misrepresentation, and fraud.
• Interviewed UIA staff and leadership.
• Conducted meetings with UIA staff regarding various
business processes.
• Analyzed data including paid claims, cases including
nonmonetary issues and intentional misrepresentation,
and benefit payments.
OBJECTIVE To assess the sufficiency of UIA's efforts to identify and
investigate potential claimant fraud.
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To accomplish this objective, we:
• Reviewed a random sample of 25 intentional
misrepresentation cases from a population of 3,246
cases UIA established from January 1, 2020 through
December 31, 2022 to verify managers approved the
determinations and UIA assessed appropriate fraud
penalties.
• Analyzed data from UC claims paid between January
2020 and October 2022 compared with MDHHS and
MDOC databases to identify claimants collecting UC
benefits while at a long-term care facility, while
deceased, or while incarcerated at a State prison. We
also reviewed similar data analyses completed by UIA
and any efforts to address these potentially improper
payments.
• Analyzed data from UC claims paid between January
2020 and October 2022 compared with UIA employee
and UIA contractor listings to identify claimants
collecting UC benefits while working for UIA. We also
reviewed similar data analyses completed by UIA and
any efforts to address these potentially improper
payments.
• Analyzed data from UC claims paid between January
2020 and October 2022 to identify claimants above or
below the typical working age and any UIA efforts to
identify or address these potentially improper payments.
• Reviewed a random sample of 25 and a judgmental
sample of 5 of the 19,121 repayment claims that UIA
created from January 1, 2020 through December 31,
2022, based upon UIA determination of identity theft
through a fraud investigation. We reviewed the notes
within MiDAS to determine if ID attempted to determine
the identity of the imposter, attempted to recover
fraudulent payments, and referred the fraudulent
payments to law enforcement. Our judgmental sample
included the 5 highest claim amounts.
• Reviewed a random sample of 25 of the 65,304 new
hire crossmatch nonmonetary issues UIA created from
January 1, 2020 through December 31, 2022 to
determine how UIA investigated the issues and if UIA
followed up with nonresponsive claimants and
employers.
• Analyzed UIA claim data from UC claims filed from
January 1, 2020 through December 31, 2022 to
determine if Fraud Manager flagged claims that met
UIA's established business rules. We also analyzed
payment issuance date for claims Fraud Manager
flagged after payment issuance.
Michigan Office of the Auditor General 32
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• Reviewed a random sample of 9 of the 144 weekly
reports from weeks ended January 4, 2020 through
December 31, 2022 and a random sample of 15 of the
679 daily reports from January 1, 2020 through
December 31, 2022 which UIA used to enhance fraud
detection and prevention.
• Analyzed the population of 299,227 fraud and identity
theft referrals submitted to UIA from January 1, 2020
through November 10, 2022 to determine which MiDAS
users closed the cases and how timely UIA closed
them.
• Reviewed a random sample of 100 of the 299,227 fraud
and identity theft referrals submitted to UIA from
January 1, 2020 through November 10, 2022, and 20
related fraud investigation cases, to verify the referrals
were closed to the appropriate stage by appropriate
staff.
• Analyzed the population of 2,073,573 fraud investigation
cases open from January 1, 2020 through December 9,
2022 to identify population trends and MiDAS case
owners and reviewed a random sample of 60 fraud
investigation cases to confirm whether UIA addressed
the underlying fraud risks which initiated the creation of
the fraud investigation.
• Analyzed the population of 2,239,694 identity
verification cases open from January 1, 2020 through
December 9, 2022 to identify population trends and
reviewed the 56 identity verification cases directly
associated with our randomly sampled 60 fraud
investigation cases to confirm whether UIA addressed
the underlying fraud risks which initiated the creation of
the identity verification.
• Reviewed UIA's listing of cases referred to USDOL OIG
or Department of Attorney General and compared it with
UIA organizational charts and contractor listings to
identify and review cases of internal fraud.
We selected our random samples to eliminate any bias and
enable us to project our test results to their respective
populations. For our judgmental samples, we selected high-
dollar sample items for efficiency* purposes, and therefore, we
could not project the results to the respective populations.
CONCLUSIONS We base our conclusions on our audit efforts and any resulting
material conditions or reportable conditions.
When selecting activities or programs for audit, we direct our
efforts based on risk and opportunities to improve State
* See glossary at end of report for definition.
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government operations. Consequently, we prepare our
performance audit reports on an exception basis.
AGENCY Our audit report contains 4 findings and 4 corresponding
RESPONSES recommendations. UIA's preliminary response indicated UIA
and LEO partially agree with all of the recommendations.
The agency preliminary response following each
recommendation in our report was taken from the agencyʹs
written comments and oral discussion at the end of our
fieldwork. Section 18.1462 of the Michigan Compiled Laws and
the State of Michigan Financial Management Guide (Part VII,
Chapter 4, Section 100) require an audited agency to develop a
plan to comply with the recommendations and to submit it to the
State Budget Office upon completion of an audit. Within 30
days of receipt, the Office of Internal Audit Services, State
Budget Office, is required to review the plan and either accept
the plan as final or contact the agency to take additional steps
to finalize the plan.
PRIOR AUDIT Following is the status of the reported findings from our
FOLLOW-UP February 2016 performance audit of the Michigan Integrated
Data Automated System (MiDAS), Unemployment Insurance
Agency, Department of Talent and Economic Development and
Department of Technology, Management, and Budget (641-
0593-15):
Prior Audit Current
Finding Current Finding
Number Topic Area Status Number
1 UIA had not fully
implemented a
comprehensive MiDAS Not in scope of this audit.
security management
program.
2 DTMB did not fully establish Not in scope of this audit.
effective security and access
controls on MiDAS servers.
3 UIA did not implement Not in scope of this audit.
effective MiDAS access
controls.
4 UIA and DTMB did not Not in scope of this audit.
maintain effective security
and access controls over the
MiDAS database.
This table continued on next page.
Michigan Office of the Auditor General 34
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Prior Audit Current
Finding Current Finding
Number Topic Area Status Number
5 UIA did not implement Not in scope of this audit.
automated controls within
MiDAS to detect claimants
who had not submitted
evidence of their work
search efforts.
6 UIA and DTMB did not fully Rewritten* Finding 3
analyze and review MiDAS
data to help identify UI
benefit payments needing
further review.
7 UIA had not fully Not in scope of this audit.
implemented processing
controls within MiDAS.
8 UIA did not fully review and Not in scope of this audit.
implement methods to
further automate MiDAS
claim processing.
* See glossary at end of report for definition.
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GLOSSARY OF ABBREVIATIONS AND TERMS
auditor's comments to Comments the OAG includes in an audit report to comply with
agency preliminary Government Auditing Standards. Auditors are required to
response evaluate the validity of the audited entity's response when it is
inconsistent or in conflict with the findings, conclusions, or
recommendations. If the auditors disagree with the response,
they should explain in the report their reasons for disagreement.
BPC Benefit Payment Control.
CARES Coronavirus Aid, Relief, and Economic Security.
COVID-19 The disease caused by a new coronavirus called SARS-CoV-2.
It is a potentially severe illness often characterized by fever,
coughing, and shortness of breath. The World Health
Organization first learned of the new virus in December 2019.
efficiency Achieving the most outputs and the most outcomes practical with
the minimum amount of resources.
ID Investigations Division.
imposter fraud Claims often filed by criminals from other states or overseas who
use stolen identities to file multiple false claims.
intentional An act of willful misrepresentation or nondisclosure of a material
misrepresentation fact for the purpose of obtaining benefits to which the claimant is
not entitled or preventing benefit payments where an individual is
entitled.
internal control The plan, policies, methods, and procedures adopted by
management to meet its mission, strategic plan, goals, and
objectives. Internal control includes the processes for planning,
organizing, directing, and controlling program operations. It also
includes the systems for measuring, reporting, and monitoring
program performance. Internal control serves as a defense in
safeguarding assets and in preventing and detecting errors;
fraud; violations of laws, regulations, and provisions of contracts
and grant agreements; or abuse.
IT information technology.
LEO Department of Labor and Economic Opportunity.
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material condition A matter that, in the auditor's judgment, is more severe than a
reportable condition and could impair the ability of management
to operate a program in an effective and efficient manner and/or
could adversely affect the judgment of an interested person
concerning the effectiveness and efficiency of the program. Our
assessment of materiality is in relation to the respective audit
objective.
MDHHS Michigan Department of Health and Human Services.
MDOC Michigan Department of Corrections.
MES Michigan Employment Security.
Michigan Integrated Data UIA's computer system used for processing and servicing all UI
Automated System (MiDAS) tax and benefit functions.
OIG Office of Inspector General.
Pandemic Unemployment Officially named Federal Pandemic Unemployment
Compensation Compensation (FPUC), which provided additional benefits up to
$600 each week a claimant was eligible for other unemployment
programs.
performance audit An audit that provides findings or conclusions based on an
evaluation of sufficient, appropriate evidence against criteria.
Performance audits provide objective analysis to assist
management and those charged with governance and oversight
in using the information to improve program performance and
operations, reduce costs, facilitate decision-making by parties
with responsibility to oversee or initiate corrective action, and
contribute to public accountability.
PEUC Pandemic Emergency Unemployment Compensation.
PUA Pandemic Unemployment Assistance.
reportable condition A matter that, in the auditor's judgment, is less severe than a
material condition and falls within any of the following
categories: a deficiency in internal control; noncompliance with
provisions of laws, regulations, contracts, or grant agreements;
opportunities to improve programs and operations; or fraud.
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rewritten The recurrence of similar conditions reported in a prior audit in
combination with current conditions that warrant the prior audit
recommendation to be revised for the circumstances.
SQR Solution Quality Request.
UC unemployment compensation.
UI unemployment insurance.
UIA Unemployment Insurance Agency.
UIPL Unemployment Insurance Program Letter.
USDOL U.S. Department of Labor.
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Report Fraud/Waste/Abuse
Online: audgen.michigan.gov/report-fraud
Hotline: (517) 334-8070