Michigan paid up to $8.5 billion in fraudulent jobless claims during the pandemic

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A Gap store in Farmington Hills, Mich., was closed by COVID-19 outbreak in March 2020. Thousands of people were left without jobs and dependent on unemployment benefits; unfortunately, some people took advantage of the system. / AFP via Getty Images

The state of Michigan paid up to $8.5 billion in fraudulent unemployment assistance claims during the pandemic, a new audit has found.

The report prepared by Deloitte & Touche found that Michigan's Unemployment Insurance Agency paid an estimated $8.4 billion to $8.51 billion in potentially fraudulent claims from March 1, 2020, to Sept. 30, 2021.

But the report also found the losses could have been much worse, as the state avoided paying an estimated $43.7 billion in fraudulent claims in that same time period.

"It's extremely disheartening that bad actors have defrauded the much-needed benefits intended for hard-working Michiganders and the scale of their actions is stunning," Julia Dale, Michigan's UIA director, said in a statement, according to The Detroit News. "We have been successful over the past year in limiting the percentage of cases that are fraudulent to less than 1 percent, but we will never stop fighting for our workers."

State-level unemployment offices dealt with unprecedented levels of new claims during the COVID-19 pandemic. This new pressure left many agencies exposed to fraudsters, according to state and federal officials.

Other states have reported billions of dollars were also lost to fraudulent claims. In October, Ohio's jobless agency reported it paid out more than $3.8 billion from April 1, 2020, through June 30, 2021. And in California, state officials confirmed that its agency paid out at least $20 billion in the form of fraudulent unemployment aid.

State agencies also had to update old unemployment systems to adhere to new programs that were created to respond to new needs under the pandemic.

Michigan's unemployment agency received 77 times more claims than it did in an average week before the pandemic. In the spring of 2020, the volume peaked with a high of over 388,000 claims in a single week, compared with just 5,000 before the pandemic. The previous all-time weekly high was 77,000 claims during the Great Recession.

At least 97% of the money that went to fraudsters came from federal programs such as the Pandemic Unemployment Assistance, which expanded jobless benefits to cover more workers, including freelancers and contractors during the pandemic. The money also came from the Federal Pandemic Unemployment Compensation program, which added $600 to the weekly benefit amount.

Mirroring the release of the report on Wednesday, Michigan announced new steps to cut down on future abuses of the unemployment system.

Michigan Gov. Gretchen Whitmer signed an executive order permanently establishing the Unemployment Insurance Fraud Response Team, to serve as an advisory body within the state's Department of Labor and Economic Opportunity to help identify, investigate and prosecute individuals who steal jobless benefits.

She also issued an executive order directing the Unemployment Insurance Agency to continue using new technologies to uncover fraud and to partner with groups to educate potential unemployment claimants.

"It's extremely important that we continue to push back on bad actors who look to take advantage of a vital safety net resource for out-of-work Michiganders," Whitmer said in a statement. "While we are seeing increased success in identifying and stopping fraudulent claims, we cannot let up. We owe it to workers to make sure this jobs resource is available when they need it the most."

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