A modernization project became a debt-collection crisis
Michigan’s Unemployment Insurance Agency introduced the benefits portion of the Michigan Integrated Data Automated System, or MiDAS, in October 2013. It was supposed to improve the administration of unemployment insurance. Instead, its automated fraud decisions helped turn a public benefit into unexpected debts for thousands of people. The state later launched a review covering roughly 50,000 potential-fraud cases from 2013–2015, and a separate constitutional-rights lawsuit culminated in final approval of a $20 million settlement on January 29, 2024. [1] [5] [8]
The story involves three connected systems: the software that compared records, the administrative process that decided whether a claimant had intentionally misled the state, and the collection machinery that could reach wages and tax refunds. Errors became particularly consequential when a discrepancy moved through all three before the person affected had a meaningful chance to challenge it. [2] [6]
What Michigan intended to build
MiDAS replaced a mainframe system that was approximately 30 years old. The state’s February 2016 performance audit reported a $47 million contract with Fast Enterprises for design, configuration and implementation. The system handled employer unemployment taxes as well as benefit payments. Its stated goals included better customer service and data accuracy, lower operating costs, stronger security and greater automation. Those were project objectives, not the audit’s verdict that the objectives had been achieved. [1]
Unemployment insurance requires accurate information about earnings and eligibility. A claimant can receive more than the rules allow without having intentionally committed fraud. That distinction matters because a fraud determination can add penalties and collection consequences beyond repayment of benefits. MiDAS’s failure concerned how that distinction was made and how people could contest it. [2] [5]
How a discrepancy became a fraud determination
A federal court’s 2018 opinion in Cahoo v. SAS Institute described the process alleged in that case. An income-spreading formula divided earnings reported for a quarter across its weeks. That could create an apparent conflict with a claimant’s truthful report of no earnings during an individual week. A computer-generated questionnaire then required a response within ten days. Certain answers, or a failure to answer, could trigger a finding of intentional misrepresentation. [2]
According to that pleaded account, notices sometimes went to dormant online accounts or did not reach claimants. The resulting debt could include repayment plus a fraud penalty four times the benefits at issue. Collection could reach state and federal tax refunds or wages. The opinion was deciding motions to dismiss, accepting pleaded facts for that purpose; it was not a trial verdict establishing every allegation against every defendant. [2]
The human case behind Bauserman
Grant Bauserman’s experience shows why the dispute outlasted correction of an individual claim. The Michigan Supreme Court’s 2022 opinion recounts that he collected benefits after leaving employment with Eaton Aeroquip. In December 2014, the agency said he was ineligible and had intentionally misled it, assessing $19,910 including penalties and interest. He protested online. Nevertheless, the agency intercepted his tax refund in June 2015. [6]
The agency later reversed itself, finding that Bauserman had been eligible and had neither misled it nor concealed information. It nullified the earlier determinations in September 2015 and returned the improperly seized money. His lawsuit, filed that month, raised a further question: whether a refund alone answered the claim that the government had taken property without constitutionally adequate notice and a chance to be heard. [6]
The warning signs were also administrative
The problem was not confined to a single calculation. A separate 2016 claimant-services audit found weaknesses in communications and handling returned mail. UIA estimated that 451,000 mail items came back as undeliverable in 2014. In a sample of 50 returned items set aside for shredding, auditors found 14 that had not received required processing. Those sample results should not be treated as a measured error rate for every mailing. [3]
The same audit reported that the average age of pending lower-level appeals reached 94 days in the quarter ending June 2015, against a federal performance standard of 30 days or less. This measures pending appeals, not the wait in every individual case. For a person disputing a debt, failures in notification and delayed review could compound the original determination. [3]
Stopping automated decisions did not resolve the old cases
In January 2017, the agency said it had stopped using the automated system to issue fraud determinations in August 2015. It described a replacement process involving trained staff and further contact with claimants or employers where needed. The software’s continued use for other agency functions was therefore different from continued use of the original automated fraud-decision process. [4]
Later that month, the agency described a review covering about 50,000 potential-fraud cases affecting roughly 40,000 people. About 22,000 computer-decided cases had been reviewed; roughly 28,000 cases involving some staff review remained. These are cases and people in the review population, not a statement that every one of them involved a false accusation. The agency also distinguished unjust fraud penalties from genuine benefit overpayments that still required repayment. [5]
The later settlement agreement records that Michigan set aside $21 million in August 2017 for refunds, with full or partial refunds issued to many participants. That refund program was separate from the subsequent $20 million settlement. Adding the figures would not establish the amount paid to victims or the complete public cost of the episode. [7]
Why the lawsuit took years
Bauserman reached the Michigan Supreme Court over legal barriers to recovery. In July 2022, the court held that the plaintiffs could pursue monetary damages for their alleged violation of Michigan’s constitutional due-process protection because no adequate alternative remedy existed for those alleged injuries. The ruling allowed the damages claim to proceed; it did not itself calculate a class-wide award. [6]
The state and plaintiffs then negotiated a settlement announced in October 2022. The agreement expressly preserved UIA’s denial of wrongdoing and liability. It created a gross $20 million fund, with approved fees and administrative expenses deducted before the net fund was distributed. Thus, the headline settlement amount was not the amount each claimant received or a promise that all $20 million would go directly to claimants. [7] [8]
The outcome, and the limits of the record
Final court approval arrived on January 29, 2024, following preliminary approval and the claims process. The settlement provided economic-loss and hardship awards for eligible class members. The claims administrator’s public site subsequently listed September 18, 2024 as the release deadline. Those are historical deadlines, not an invitation to submit a new claim today. [8] [9]
The settlement class was narrower than the entire population whose cases the agency reviewed. It covered initial automated intentional-misrepresentation determinations from October 1, 2013 through August 31, 2015, with a first collection on or after March 9, 2015, and excluded people who opted out. In their December 2023 final-approval brief, class counsel reported 3,206 registrations from 8,205 known class members. That was a participation count for this settlement, not the total number of people affected by MiDAS. [10]
The materials reviewed for this account do not establish that every eligible person has received a final payment, nor do they provide a single verified total for all refunds, litigation costs and compensation across the MiDAS episode. The documented outcome is narrower: Michigan ended the original automated decision process, reviewed past cases, refunded some collections, and settled the Bauserman damages case. A system built to improve accuracy and efficiency required years of additional work to correct decisions and address their financial consequences. [4] [7] [8] [9]
Sources
- Michigan Office of the Auditor General, MiDAS performance audit, February 2016Official source · PDFBack to text: ↑1↑2
- U.S. District Court, Cahoo v. SAS Institute, opinion on motions to dismiss, 2018Official source · PDFBack to text: ↑1↑2↑3↑4
- Michigan Office of the Auditor General, Claimant Services audit, April 2016Official source · PDFBack to text: ↑1↑2
- UIA, review of remaining potential-fraud cases, January 6, 2017Official sourceBack to text: ↑1↑2↑3
- Talent Investment Agency, review and hotline announcement, January 30, 2017Official sourceBack to text: ↑1↑2↑3
- Michigan Supreme Court, Bauserman opinion, July 26, 2022 (court opinion reproduced by Justia)SourceBack to text: ↑1↑2↑3↑4
- Bauserman amended settlement agreementSource · PDFBack to text: ↑1↑2↑3↑4
- Michigan Attorney General, final settlement approval announcement, January 30, 2024Official releaseBack to text: ↑1↑2↑3↑4↑5
- Bauserman claims administratorSourceBack to text: ↑1↑2↑3
- Bauserman plaintiffs’ final-approval brief, December 2023Source · PDFBack to text: ↑