Last week, a proposed class-action lawsuit was filed against the companies responsible for developing and installing MiDAS, the Michigan Integrated Data Automated System.
The complaint accuses Colorado-based Fast Enterprises, North Carolina-based SAS Analytics, and Illinois-based CSG Government Solutions of negligent product design, and of violating constitutional rights to due process and to protection from unreasonable search and seizure, among other laws.
MiDAS was proposed ostensibly to help the Michigan Unemployment Insurance Agency (UIA) automate the processing of unemployment benefits claims and related filings.
Through automation, it was supposed to improve customer service, increase data accuracy, improve data security and privacy, and reduce operating costs.
But the system, which shares its name with a mythological king humbled by greed, did the opposite.
Deployed in October 2013 at a cost of $47 million, it was insecure, as noted by a prior audit.
Between October, 2016, and January, 2017, authorized users consisting mainly of human resources personnel at companies using the system could see the names, social security numbers, and wages of people whose payroll is handled by any of the 31 third-party vendors that work with the UIA. Information related to as many as 1.87 million workers was exposed but no determination yet has been made about whether any information was stolen or misused.
Worse still, MiDAS was designed to find fraud and was coded so poorly that, as the state has acknowledged, it had a 93% error rate when its attempts to identify fraud weren't reviewed by humans.
These erroneous automated determinations meant that those wrongly flagged, instead of receiving funds, could be directed to pay the state five times the amount claimed. And the system was automated to such an extent that individuals accused of fraud often were not notified until it was too late to challenge the determination and were not provided with a way to respond.
A federal lawsuit against the state related to MiDAS was settled in February and a separate class-action lawsuit is working its way through the state court system.
MiDAS "regularly and as a matter of practice determined that eligible beneficiaries committed unemployment fraud without any factual basis," the complaint says. "The programs subjected previous beneficiary payments to renewed automated scrutiny and 'robo-adjudication' of new fraud determinations for past benefits paid."
Michigan has highest unemployment fraud penalty in the nation at four times the claimed benefit, plus the amount claimed, according to Anthony Paris, an attorney for the Detroit-based Sugar Law Center for Economic & Social Justice. Paris has been involved in litigation against the state on behalf of individuals affected by MiDAS but isn't a party in the case filed last week.
The state's goal, said Paris, in phone interview with The Register, was to prioritize the classification of unemployment insurance fraud. "I think they did this to deter people from filing for benefits," he said, "so they can say claims are down."
There have been at least two suicides in the state related to financial penalties arising from MiDAS's accusations of fraud, Paris said, who added that two of his clients had gone so far as to pen suicide notes.
Erroneous accusations of fraud by MiDAS commonly resulted in fines, often ranging from $10,000 to $50,000, according to the complaint. To collect, the state often garnished wages and seized tax refunds, without due process.
The state has said over 20,000 claimants have falsely been accused of fraud. According to Paris, the error rate is probably higher than 93%. In over 500 hearings, Paris said he's aware of just two cases of actual fraud.
"[Michigan] found this was a way to potentially make some money," said Paris, noting that the state's unemployment insurance contingency fund increased from $3.1 million in 2011 to $155 million by December, 2016.
Michigan has yet to return the funds it has obtained through MiDAS.
Fast Enterprises and CSG Government Solutions did not respond to requests for comment. A spokesperson for the Michigan Department of Talent and Economic Development declined to comment on pending litigation.
The state audit of MiDAS, delivered in February 2016, is damning enough, finding the system insecure and poorly implemented.
Designed to save the state money, the software ended up forcing the state to hire 22 new administrative law judges to deal with the backlog of appeals and hearings – some 23,000 cases, according to Paris – created by its indiscriminate accusations of fraud.
"It was a colossal failure on every level," said Paris.
MiDAS, according to the complaint, was designed "to search for discrepancies in the records of individuals who are receiving, or have previously received, UI benefits and their employers."
The software looks for any discrepancy between what a claimant declared in required paperwork and information provided by a former employer and assumes that means fraud, said Paris.
And once it has found a discrepancy, the software embarks on a process that affords implicated individuals inadequate notice and few opportunities to respond, even as it disqualifies those affected from hardship waivers.
"In many cases, the determination [of fraud] is automated and made by a computer without the benefit of any investigatory review, or human input or evaluation of any kind," the complaint states. ®