Michigan Unemployment Insurance False Fraud Determinations

Problem Statement

The Michigan Unemployment Insurance Agency rolled out the Michigan Integrated Data Automated System (MiDAS) in 2013, which was built by contractor Fast Enterprises starting in 2011 for $47 million. During its first two years in use, the system falsely accused 40,000 residents of fraud (a 5-fold increase from expected numbers). A corresponding spike in appeals alarmed advocates. It turned out that the system would flag any data discrepancies as fraud, no matter how trivial, and required followup from the applicant to clarify within 10 days.

MiDAS also took the average of an applicant’s entire income instead of looking at individual paychecks, which led to discrepancies between reported and system-determined income—and more false fraud flagging. Even worse, people filing disputes had to fill out an extremely misleading questionnaire, which was pre-filled with responses that would flag the applicant for fraud. Applicants would receive notices only on the unemployment portal (instead of in the mail), which they had no reason to check if they were no longer receiving benefits. Applicants accused of fraud had their tax refunds seized and wages garnished by the state, all in disproportionately high amounts compared to what they were accused of actually owing.

The Michigan Auditor General reviewed 22,000 MiDAS fraud determinations in 2016 and determined that 93% did not actually involve fraud. Because applicants were not given a real chance to fight fraud determinations, many suffered severe consequences, like having to file for bankruptcy or tarnished credit ratings. In 2015, advocates filed a class-action lawsuit, Bauserman v. Unemployment Insurance Agency, which was initially dismissed by a lower court because plaintiffs waited too long to file. In 2019, the Michigan Supreme Court decided that a state constitutional claim for damages could move forward. And in the 2017 federal court case Cahoo v. SAS Analytics Inc., other advocates sued the state agency, the state agency’s contractor, and several individual agency officials.

Status of Issue

In a 2017 settlement under Zynda, et. al. v. Zimmer et. al., Michigan’s Unemployment agency agreed to stop using MiDAS’s automated functions without human review. The settlement also made the agency reverse and refund certain fraud determinations. The Michigan Legislature also passed a set of bills in 2017 which lessen fraud penalties and prevent certain consequences if administrative errors caused the fraud allegations. Many claimants are still working on getting refunds and damages paid back to them.

In July 2022, the Michigan Supreme Court ruled in Bauserman v. Unemployment Insurance Agency that people in Michigan can sue state agencies for monetary damages for violating their constitutional rights, rather than having to wait for the state legislature to offer remedies.

Links to More Information

2017 Bills: Gov. Rick Snyder signs bipartisan bills modernizing Unemployment Insurance Agency system - Michigan.gov

Michigan may pay victims of unemployment benefits blunder - Daily Press

States’ Automated Systems Are Trapping Citizens in Bureaucratic Nightmares With Their Lives on the Line - TIME Magazine

Thousands of unemployed in Michigan wrongly accused of fraud can seek cash from state - Detroit Free Press

Cahoo v. SAS Analytics Inc., No. 18-1296 (6th Cir. 2019)

Bauserman v. Unemployment Insurance Agency

Zynda, et. al. v. Zimmer et. al. settlement

AI Now Institute - Litigating Algorithms 2019 US Report Session 3: Public Benefits and Collateral Consequences

Undark - Government’s Use of Algorithm Serves Up False Fraud Charges