Michigan's labor department has flagged 340,000 active unemployment accounts for potential fraud as part of a sweeping effort to fight fraudulent claims that have impacted unemployment systems across the country during the coronavirus pandemic.
Attorney General Dana Nessel on Friday formed an interagency task force with the Michigan State Police, U.S. Department of Labor and three state government agencies to investigate what officials describe as a widespread and coordinated effort to file fraudulent unemployment claims at a time when one in four Michigan workers has been out of work.
The 340,000 claims amount to one in seven or 15 percent of the 2.2 million jobless claims filed since mid-March when the coronavirus outbreak prompted mass layoffs, said Jeff Donofrio, director of the Michigan Department of Labor and Economic Opportunity.
"Our exposure to potential criminal activity could be in the hundreds of millions of dollars," Donofrio said in a videoconference call with reporters.
Donofrio said an influx of fraudulent claims has been "intentionally timed to take advantage" of Michigan's taxed Unemployment Insurance Agency and the expansions of benefits that Congress and Gov. Gretchen Whitmer have extended to workers during the pandemic.
Through an executive order, Whitmer expanded the number of weeks workers could claim Michigan's $362 maximum weekly unemployment benefit from 20 to 26 weeks.
Congress tacked on another 13 weeks, plus gave every jobless worker a $600 special pandemic benefit through the end of July that some employers believe is contributing to labor shortages.
Now officials say it's helping fuel efforts to defraud unemployment insurance trust funds, which are funded by employers based on payroll taxes.
"You have this infusion of money into the program from the federal government ... unprecedented numbers of claims, a tremendous public urgency to have the benefits paid out as quickly as possible to the households in need. All of that combines to create really a once-in-a-lifetime opportunity for fraudsters," said David Tanay, chief of the health care fraud division in the Attorney General's office.
The U.S. Department of Labor's inspector general estimates at least $26 billion may be stolen during the pandemic from unemployment insurance trust funds, Donofrio said.
"Every state program in the nation is currently under attack by these fraudsters," Donofrio said. "... This environment has created a perfect storm for criminal activity."
Michigan's unemployment agency has assigned 600 employees to verify the identity of the 340,000 claims that have been flagged for potentially fraudulent activity, and another 200 employees will be assigned to the project next week, Donofrio said.
Payments to those accounts have been stopped, Donofrio said.
"Unfortunately, many of these are legitimate claimants whose economic lifeline is not tied up due to this criminal scheme," he said.
The state agency has hired a third-party forensic accounting firm to identify fraudulent activity and refer any instances of fraud to law enforcement agencies, Donofrio said.
This week, the state labor department reported 41,035 Michigan residents filed initial unemployment claims for the week ending May 30.
Business owners and executives have not been immune to false unemployment claims made in their name.
Former Lt. Gov. Brian Calley, president of the Small Business Association of Michigan, said someone recently filed a claim in his name.
Someone had Calley's correct Social Security number, address and other personal information needed to make an unemployment claim, he said.
"It was ironic because I was reading about the potential of organized crime widespread across the country filing fraudulent unemployment insurance benefits," Calley said Friday. "And literally like an hour later I opened my mail and had a notice that I had been approved for unemployment benefits."
Calley said he and SBAM's payroll manager reported to the state agency that the claim was fraudulent.
"I haven't heard anything since," Calley said. "I don't know how long it takes to resolve those sorts of things."
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