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Following the money: Unemployment ‘fraud’ penalties being redirected by state

Posted at 5:51 PM, Jun 15, 2015
and last updated 2015-06-15 17:51:36-04

WEST MICHIGAN -- People's tax refunds are being taken and wages are being garnished by the Michigan Unemployment Insurance Agency (UIA). Now the FOX 17 Problem Solvers are learning the money that should help clean up a huge mess is being diverted to other programs.

The FOX 17 Problem Solvers have introduced you to several people who've been accused of fraud, months and sometimes years after filing for benefits. They're being forced to pay fines, even though they say they are innocent. So many people feel powerless against the state and say they followed the rules when filing for benefits.

For your state lawmakers' information, head to the bottom of this article

"This has to change. Somebody higher up has got to recognize that this is wrong," said attorney David Blanchard, who has filed a federal lawsuit against the state on the matter.

According to the Michigan Employment Security Act, penalties and interest collected from alleged unemployment fraud goes into a 'contingent fund.' By law, that account should be used to operate the UIA. It’s also intended fund the advocacy assistance program, even though most of the people who need an advocate to fight fraud claims are denied that help.

According to the nonpartisan Michigan House Fiscal Agency, the contingent fund balance skyrocketed from $3 million to nearly $70 million in just three years. The huge increase coincides with the state's documented efforts to crack down on fraud. In 2011, the state brought a new computer system online to seek it out.

This from the Michigan House Fiscal Agency analysis from April 2015:

"The fund balance within the P&I has substantially increased since FY 2010-11 (despite reductions in federal administration grants beginning in FY 2011-12) subsequent to substantial reforms to the MESA designed to improve UIA program solvency by generally raising tax collections, reducing benefit payments, and strengthening penalties on prohibited actions. The balance within the P&I was $3.1 million at the close of FY 2010-11 and has grown to $68.8 million as of September 30, 2014." 

A state report calls the computer system efficient because it makes decisions without human intervention by a state employee. However, critics say it’s flawed and defaults to heavy-handed outcomes, even for the slightest errors.

"Not only accusing people in an automated fashion of fraud when there is no basis to find fraud, but also accusing them through their computer file months or sometimes even years after they've stopped collecting benefits," Blanchard said.

The Problem Solvers have talked to so many people who say they are getting swept up in a tsunami of false fraud accusations. Many of them are being penalized up to four times what they originally collected, even though their “crime” may have been an innocent mistake.

Bankruptcy attorney Jeffrey Mapes said he's seen his fair share of unemployment debt-related cases.

"You [the state] don't have to show that they had any bad intent, simply that they made a mistake. That's just asinine, and unfortunately, it is up to our state legislature to fix because those penalties are encoded in the legislation," Mapes said.

Now, instead of improving the unemployment agency and dealing with what some say is a faulty system, a portion of those fines, millions of dollars, are being diverted to other programs. Earlier this month, Gov. Rick Snyder signed a bill allowing money from the "contingent fund" to pay for workforce training programs. Critics say it’s as if the state is punishing the unemployed to balance the books.

"So if there ever is going to be any meaningful reform, we're going to have to start getting on the legislators and let them know that if you need to balance the state budget, doing it on the most vulnerable people who are least able to afford it is not the way to go about it," said Mapes.

While the governor's office and the UIA repeatedly say they won't go on camera because of a pending federal lawsuit, the UIA did mention following:

"The legislature has commanded that the agency 'shall' take necessary action to recover benefits improperly obtained and to enforce penalties."

However, so many people say they never had any intention of defrauding the state and say they are being called criminals by an overzealous computer system.

Despite the fact that FOX 17 is being inundated with phone calls and emails, several lawmakers we talked to say they are hearing little or nothing. If you have been accused of fraud by the unemployment agency, you should contact your state lawmakers and the governor's office. You can write to them online, and you can call them.

Contact your state representative

Contact your state senator

Contact the Office of Governor Snyder

Contact the Office of the Attorney General

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