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State falsely penalizes thousands for unemployment benefits fraud. Now victims want their money back

A photograph of the exterior of Michigan Capitol building
Steve Carmody
Michigan Radio
Those falsely accused of fraud by the Michigan Unemployment Insurance Agency faced stiff penalties and aggressive collection techniques.

A report from the state auditor general says Michigan's Unemployment Insurance Agency isn't doing enough to collect the delinquent taxes from employers.   

In 2013, after the state began using an automated system to identify cases of unemployment insurance fraud, more than 20,000 people were wrongfully accused, with an error rate of 93%. Staff at the agency have since moved away from the automated system, and the director has been reassigned to work on special projects.

For those who were targeted by the faulty computer system, however, changes at the agency may offer little consolation.

According to a recent article by Detroit Free Press reporter Paul Egan, many of the unemployment insurance claimants who were wrongfully accused of fraud faced stiff penalties and were subjected to aggressive collection techniques.

Egan said the state's system retroactively evaluated unemployment insurance claims as far back as 2007 – six years before the system began operating. So far, fewer than 2,600 victims of the faulty statement have been compensated by the state for the penalties they faced.

Listen to the interview with Paul Egan below:

Our conversation with Paul Egan of the Detroit Free Press

Some of those falsely accused of fraud have filed a class action lawsuit against the state. The lawsuit, which was filed in 2015, is currently in Michigan Court of Claims and the Michigan Court of Appeals.

Jennifer Lord is the attorney who filed the suit. She thinks the state may be underestimating the number of victims of the system by a significant amount. 

According to the statute of limitations, anyone who had money seized from them on Sept. 9, 2012 or later is eligible to participate in the lawsuit. However, what has been learned is that the errors may date back to 2007, which means it could have affected as many as 50,000 people. When the Michigan Integrated Data Automated System (MiDAS) went online in 2013, it did a six-year look-back to find any potential fraud cases.

Listen to the interview with Jennifer Lord below:

Our conversation with Royal Oak attorney Jennifer Lord

For people already dealing with the struggles of needing unemployment, many affected were hit at the heart of the Great Recession. According to Lord, there are stories of people losing their homes and pleading guilty to crimes they didn't commit as a result of the fraud accusations.  

The state has admitted that the computer system made errors, but despite that, the state continues to fight the case. 

A state spokesman said that as of December, the state has refunded $5.4 million to 2, 571 claimants who were wrongly accused of fraud, which is a small percentage of the number of people who have been affected.

Governor Rick Snyder and lawmakers have received criticism, including from Michigan Radio's Jack Lessenberry, for shifting "excess" money away from the unemployment insurance system and into the state budget. 

Listen to the audio above to hear more about the case and what people can do if they think they were wrongly accused of fraud by the state. 

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