The Michigan Unemployment Insurance Agency failed to ensure background checks were conducted for more than 5,500 employees as the agency ramped up its staffing numbers under a wave of new claims at the start of the pandemic.
The audit found 169 workers had prior convictions for offenses that included financial crimes, and 71 of those 169 were still employed at the time of the review.
The agency also allowed departed workers continued access to the unemployment system, leading in at least one case to about $3.8 million in fraud, according to an audit released Friday of the agency’s personnel management. The agency has yet to hold the staffing agencies responsible for employees who committed fraud.
A total of 63 of 139 departed workers sampled by the Auditor General’s office had continued access to the Michigan Integrated Data Automated System (MiDAS) “to view and make unauthorized changes to claims for an average of 32.6 days after their departure,” the audit said.
“The continued access contributed to the $3.8 million UIA fraud the former worker committed in mid-2020,” the audit said. If the fraud hadn’t been detected when it was, it would have resulted in more than $12 million in fraud, the Auditor General’s office estimated.
Auditor General Doug Ringler rated the agency’s overall handling of new and departing employees as “not sufficient” and found four material conditions, the most serious findings in a state audit.
Ringler’s report comes a few weeks after the unemployment agency disclosed that it had suspended or fired 18 employees during the pandemic because of pending criminal investigations.
Prior audits at the agency pegged the agency’s losses to fraud at about $8.5 billion, including about $2.8 billion related to impostor fraud and $5.7 billion related to likely intentional misrepresentation. A total of 54 individuals have been charged with unemployment fraud since the start of the pandemic.
The state said Friday the audit took place between October 2019 and late 2020, when the agency’s work force grew five times from pre-pandemic staffing levels.
“As UIA worked quickly to increase the department’s capacity to address Michiganders’ needs, the execution was far from perfect,” said agency Director Julia Dale. “The lessons learned and opportunities articulated by the audit serve as the platform to launch an improved Michigan Unemployment Insurance Agency.”
Since the audit, the agency has established new policies and procedures addressing “system access, criminal background checks, data security, staff training and contractor hiring,” Dale said.
The UIA paid roughly $137 million through June 2021 to three staffing agencies, 16 Michigan Works agencies and other state departments for extra staffing during the pandemic.
It also paid $34.2 million for limited-term employees as it processed a record 5.2 million claims resulting in $36.5 billion in benefit payments between March 15, 2020 and June 28, 2021.
The unemployment agency, according to the audit, failed to secure confidentiality agreements with two staffing agencies or provide data governance training to staffing agencies. The agency also didn’t ensure the staffing companies had adequate insurance to cover bad actors.
In all, the Unemployment Insurance Agency granted access to confidential claimant and employer information to more than 5,500 temporary workers between April and December 2020 “without first taking required actions to protect the confidentiality of the information.”
In addition, the agency, whose contracts were handled by the state Department of Labor and Economic Opportunity, never signed a $8.3 million purchase order for staffing between April and August 2020 and waited three months into a second $5.6 million contract to sign. Changes to staffing numbers — including an expansion from 200 to 1,400 call center workers over three months — were not noted in contracting materials such as purchase orders or change notices.
The audit found the agency did not make sure pre-employment background checks were conducted on 5,508 workers. Of those, 169 workers had one or more convictions for financial crimes such as identity theft, armed robbery and embezzlement, according to the audit. About 71 of those 169 people were still employed at the time of the audit.
Some staffing agencies did conduct background checks on employees, the audit said, but the “UIA did not request to view the results of the background checks to identify workers with criminal histories who should be precluded from working at UIA or attempt to run background checks on workers not previously subject to them.”
The agency said the failure to require background checks was an “oversight,” but “even after UIA learned of this oversight in mid-2020, it did not take timely or appropriate measures to correct it,” according to the audit.
The audit also showed the state Department of Labor and Economic Opportunity did not include conflicts and ethics language in two purchase orders with agencies, language that prohibits contractors from doing anything of impropriety that might influence a state employee “by the direct or indirect offer of anything of value.”
Within two weeks of those purchase orders being completed, the program manager who executed the order asked the agency about job opportunities and was hired by the agency about eight months later.
“Although the interactions between the parties give the appearance of a potential conflict, nothing came to our attention to indicate the staffing agency received any favorable treatment, either financially or otherwise,” the audit said.
