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New unemployment system flags more fraud, but advocates say many are innocent

Jul 24, 2015

David Vela and his wife, Klaudia.
Credit Rebecca Kruth

Unemployment fraud cases are on the rise in Michigan.

Advocates say the state’s automated unemployment insurance system is snagging innocent people for fraud without any human oversight.

Being wrongly accused of fraud can mean many months, lots of money and a hearing before an administrative judge to clear your name.

That's exactly what happened to George Patterson of Taylor, who saves everything.

“I’ve been accused of being a pack rat,” he said. “I have a lot of my paperwork from 10, 15 years ago.”

He uses a little ledger book to track the different jobs he does as a union millwright. When he was laid off in 2013, he used it to track his unemployment benefits.

“In that book I put down that I collected unemployment that week, how much I collected, confirmation numbers and everything else,” he said.

After Patterson went back to work, he got a letter from the state Unemployment Insurance Agency saying he had unreported earnings while he was collecting benefits.

“Basically, they told me I committed fraud, and I owed them $18,000,” he said. 

Even though Patterson knew he’d done everything right when he was on unemployment, he combed his records, trying to find if he’d made a mistake.

He hadn’t.

Patterson decided to appeal the charges. He used $2,000 he'd set aside to pay his taxes and hired an attorney to help him appeal the charges.

At the hearing, an administrative judge ruled in Patterson’s favor.

There wasn’t any evidence to show he’d committed fraud.

Steve Gray, director of the Michigan Unemployment Insurance Project, says cases like Patterson's are not unusual.

“We’re seeing case after case after case with somebody who’s done everything they’re supposed to do, been very honest with the system, and yet they’ve ended up being charged with fraud,” he said.

Gray says he noticed a big uptick in fraud cases right around the time the UIA implemented a new system to automate most of the unemployment process.

“We’re calling it robo-fraud, because the computer is basically making the determination that there’s fraud,” Gray said.

The new system is called MiDAS.

It scans the unemployment database and looks for cases where the information an employee provided when they applied for benefits doesn't match the information their employer provides.

When the system finds one, the case gets flagged.

"Then, very quickly and without any human intervention, it kicks out a fraud determination against [a claimant],” said Gray.

In 2014, the state Unemployment Insurance Agency established over 26,000 cases of unemployment fraud, more than five times the yearly average.

In Michigan, a fraud charge comes with a penalty four times the amount a claimant was allegedly overpaid. Plus interest.

A claimant has a 30-day window to appeal. After that, the charge is final and the UIA can garnish wages and tax returns.

"The agency doesn’t have to go to court like everybody else does in order to get a garnishment order,” said Gray. “[When] you combine the four-times penalty, and the robo-fraud, and the administrative garnishment, you get what happened to David Vela.”

Vela, of Garden City, collected unemployment for nearly a year after he was laid off from his job as an electrician.

He didn't even know there was a fraud charge against him until money started disappearing from his paycheck.

“It was a quarter of my pay every week,” said Vela. “I had to work, thank God I was able to, six days a week, 12 hours a day, just to be able to pay the bills."

Vela never had a chance to appeal his fraud determination, because the UIA sent it to the wrong address, two years before his wages were garnished.

He had to file a late protest, and the agency refused to stop garnishing his wages in the months leading up to his hearing.

The stress took a big toll on him. And his wife, Klaudia.

“To wake up and realize he’s not next to you, [you wonder] where is he? He’s out on the couch, thinking and analyzing himself, wondering what’s going to happen,” she said. “That’s the worst part.”

Vela had his hearing in April, and an administrative judge cleared his name. Like George Patterson’s case, there wasn’t any evidence to show he’d committed fraud.

The UIA says it takes cases like Vela’s and Patterson’s seriously, and it’s been adjusting the new system since its implementation.

Meanwhile, Patterson got another fraud determination in June for the same period of unemployment. 

He’s still waiting to find out when his next appeal hearing will be.