The MIDAS Touch

Nancy DeRocco found out she was a fraud when her tax refund didn’t come.

She was 44, living in Sterling Heights and working in credit card processing, and as far as she knew she owed the state of Michigan nothing. The state disagreed. Its unemployment agency had decided she’d been overpaid about $3,000 in benefits back in 2012, ruled it fraud, and moved on to collecting. The notices had gone to an online portal she had never seen. The first one she actually received was the money missing from her state and federal refunds, more than $2,000 of it.

“I couldn’t understand who the heck was taking my taxes,” she told Bridge Michigan.

By then the $3,000 had become more than $14,000 in interest and penalties. A quarter of her paycheck was being garnished. She asked for a hardship waiver and was told she didn’t qualify, because hardship waivers don’t apply to fraud. In October 2015 she filed for bankruptcy over a debt that began as a $3,000 overpayment, under an accusation her own lawyer said had no evidence of intent behind it.

She wasn’t unlucky. She was one of tens of thousands. Michigan had just bought itself a new computer system, and it called it MiDAS. Like the king it was named for, everything it touched turned to gold, just never for the people it touched.

King Midas wished for everything he touched to turn to gold. One day, he finally got his wish. Then he picked up an apple to eat, only to feel it turn into the cold weight of the precious metal he valued so dearly. And he embraced his daughter, only to feel her go cold in his arms. He learned too late that gold was never the most precious thing he had. Michigan’s MiDAS touched more than 30,000 of the state’s own people, turned them into revenue, and never learned it at all.

The Touch

MiDAS went live in October 2013. The Michigan Integrated Data Automated System was supposed to modernize the state’s unemployment agency, and one of its jobs was catching fraud. It did that by comparing records, flagging mismatches, and sending each flagged person an electronic questionnaire, often to an online account they’d stopped checking once their benefits ended.

They had ten days to answer. If they didn’t, or if the system read their answer as inconsistent, the fraud finding issued automatically. The penalty was four times the benefits in question, plus interest. The state collected it by taking tax refunds and garnishing wages.

Nobody at the agency had to look. In 2017 the agency’s acting assistant director, Bruce Noll, told the Michigan House Oversight Committee that the “programming allowed MiDAS to make discretionary findings without the intervention of a human.”

There’s an old law about this. “You shall not keep back the wages of a man who is poor and needy,” Deuteronomy says. “Pay him his wages on the same day before sunset.” The law puts the clock on the powerful. MiDAS put it on the poor. A claimant had ten days, and the state had as long as it liked.

The Gold

MiDAS cost the state about $44 million to build. It paid for itself fast.

The account that collected fraud penalties and interest held about $3 million in 2011. By 2017 it held more than $160 million. When a federal court later reviewed the system, it found that the agency’s contingency fund had grown by roughly $152 million between late 2012 and October 2016. Over about two years, MiDAS accused more than 30,000 people of fraud.

The claimants didn’t change in that time. Michigan didn’t suddenly fill up with cheaters. What changed was the interval. Before MiDAS, a person flagged for a discrepancy dealt with a caseworker who could look at the file and ask a question. Michigan paid for MiDAS in part by getting rid of those caseworkers. The plan cut more than 400 jobs, about a third of the agency’s staff. The people who used to read the files and examine cases were the savings.

At least the money benefited the people of Michigan, right?

The state built the system with $44 million paid to private contractors, including Fast Enterprises and SAS Institute, both later named as defendants in a federal lawsuit by the people MiDAS falsely accused. Then the penalties started rolling in. Lawmakers used the fund to pay for job training programs, and in 2016 they moved $10 million into the General Fund to help balance the state budget, while the agency was still refunding people it had wrongly accused. Michigan funded worker training with money taken from workers it had falsely called frauds.

That’s the Midas touch. Michigan’s system turned unemployment claims into revenue, and the people it touched paid four times over.

The Reversal

In August 2017, nearly four years after MiDAS went live, Michigan admitted what it had done. The state reviewed more than 62,000 fraud cases. About 40,000 had been decided by the computer alone, with no person involved, and the state reversed 85 percent of them. The computer-only fraud findings had already stopped by then, in September 2015, but only after pressure from the federal government and a federal lawsuit filed that same month.

The comparison is the damning part. Another 22,000 cases had been flagged by MiDAS but sent to a human investigator before any finding issued, and only 44 percent of those were overturned. That’s the same rate the state sees in its ordinary appeals. When a person looked at the file first, the system was wrong at the usual rate. When nobody looked, it was wrong almost every time.

Michigan promised to refund $20.8 million. By then the refunds were years late. Nancy DeRocco had already filed for bankruptcy, and whatever she’d paid through it might never come back. Wages had been garnished, credit had been wrecked, and families had already made the choices people make when a quarter of their paycheck disappears.

Then came the last twist. When the people MiDAS had wrongly accused sued the state, a state appeals court threw out their case in July 2017 because they had missed the deadline to file. The state had punished them for missing a ten-day window, and now they lost in court for missing another one. It took the Michigan Supreme Court until 2019 to rule they had filed on time after all, and until 2022 for the state to agree to pay $20 million. Nine years after MiDAS went live, the correction finally arrived, long after the harm it was supposed to prevent was finished.

It Wasn’t Just Michigan

Australia ran the same experiment on a bigger scale. From 2015 to 2019, its welfare agency used a scheme the public came to call Robodebt. It took a person’s annual income from tax records, averaged it evenly across the year, and treated any gap between that average and what they’d reported each fortnight as a debt. People with irregular work, which is most people on welfare, got bills for money they never owed. About 470,000 debts were wrongly issued, and it fell to the recipients to prove they didn’t owe them.

In July 2023, a Royal Commission led by Catherine Holmes delivered its verdict. “Robodebt was a crude and cruel mechanism, neither fair nor legal,” the report found, “and it made many people feel like criminals.” People, it said, “were traumatised on the off-chance they might owe money.” It referred officials for possible prosecution.

The pattern shows up anywhere a machine sits between the poor and the state. In the welfare offices of Buenos Aires, the sociologist Javier Auyero watched caseworkers tell applicants their payments had been “reprogrammed” by the computer. Nobody could explain why, and nobody could change it. One woman whose four promised payments had shrunk to one could only repeat what she’d been told: “That’s what the computer says.” When the computer is the only one who knows, Auyero wrote, rescheduling “is automatic and not open to appeal.”

Different countries, different software, the same result. The machine decides, the person pays, and the explanation comes later if it comes at all.

It Can Happen to You

It’s easy to read this as a story about welfare, and about people who aren’t you. Nancy DeRocco had a job. Jason Doss worked at Ford. Kevin Grifka was a union electrician. Every one of them was out of work for a while, filed for unemployment, and went back to work. Then, years later, the state decided they were frauds. Working-class people who thought they had done everything right, suddenly branded as criminals.

Automated systems like MiDAS are now standard equipment. Governments use them to check benefits, flag tax returns, screen applicants, and decide who gets a closer look. Most of the time they work fine. When they don’t, the error lands on someone who doesn’t know a judgment was made until the money is gone. The bureaucracy used to metaphorically allow people to hide their personal decisions, and mistakes, behind a mountain of paperwork and unchecked boxes. Now the bureaucracy is a literal black box, a plane with no pilot at the helm, and we just assume the plane can fly itself and go back to watching Real Housewives.

The law has known for a long time that this order is backward. In 1970, in Goldberg v. Kelly, the Supreme Court held that a state can’t cut off a person’s welfare benefits before giving them a hearing, because someone who depends on those benefits can’t survive the wait for a hearing after the fact. The point was that the timing of review is part of whether it’s fair. MiDAS kept the hearing and moved it to after the garnishment.

Michigan did give people a window. It was ten days long, it was buried under an inbox most of them never checked, and nobody told them it was there, or to even look for it. A window you can’t see isn’t really there.

So here’s what you can do. Check every government portal you’ve ever used, even the ones for benefits you stopped collecting years ago. If someone you know gets a letter from an agency they don’t understand, sit down and read it with them before the deadline passes. And when your state talks about modernizing with automated decisions, ask one question: does the consequence wait for a human to review it, or does the review wait for the consequence? Follow the money, and you’ll usually have your answer.

Deuteronomy said to pay the worker before sunset. The rule was simple. Whoever holds the power holds the clock, and they have to use it for the person with the least time to spare. MiDAS turned that around, and Michigan got its gold. The people it touched were still part of the working class, and they were the ones who got the bill.

Sources

• Broken: The human toll of Michigan’s unemployment fraud saga (Bridge Michigan, Feb. 7, 2017): Nancy DeRocco, Jason Doss, Kevin Grifka, and her “who the heck was taking my taxes” quote.
• Jobless agency testifies on false fraud fiasco (Detroit Free Press via InsuranceNewsNet, Mar. 3, 2017): Bruce Noll’s “without the intervention of a human” quote.
• Cahoo v. SAS Institute Inc., No. 17-10657, opinion and order (E.D. Mich. Mar. 2, 2018), 3–7: how the ten-day questionnaire worked, the quadruple penalties, the fund growing from $3 million to $160 million and by $152 million, and Fast Enterprises and SAS as defendants.
• Paul Egan, “After Falsely Accusing Thousands of Unemployment Fraud and Wrongly Taking Their Money, Michigan Makes Amends. But Is It Enough?,” Detroit Free Press, August 15, 2017: fund growth and the $20.8 million in refunds.
• Michigan’s MiDAS Unemployment System: Algorithm Alchemy Created Lead, Not Gold (IEEE Spectrum): the $44.4 million cost, 400-plus jobs cut, 34,000-plus people accused, the September 2015 halt, and the July 2017 dismissal.
• Michigan reverses 70 percent of fraud cases to refund $21M (Fox 17/AP, Aug. 11, 2017): 85 percent reversed with no human involved, 44 percent with human review, and the $20.8 million.
• Contingent Fund Penalty and Interest Account fiscal brief (House Fiscal Agency, Jan. 30, 2019): penalty money spent on job training, plus the $10 million General Fund transfer.
• State raiding fraud fund to balance state budget despite unpaid refunds (Fox 17, Dec. 27, 2016): Snyder signing the $10 million transfer while refunds were still unpaid.
• Settlement of civil rights class action alleging false accusations of unemployment fraud (Michigan Attorney General, Oct. 20, 2022): the Bauserman rulings in 2019 and 2022 and the $20 million settlement.
• Australia Robodebt royal commission hands down findings (JURIST, July 8, 2023): the 470,000 debts and the “crude and cruel” quote.
• Javier Auyero, Patients of the State: The Politics of Waiting in Argentina (Duke University Press, 2012), 112, 115: “That’s what the computer says.”
• Goldberg v. Kelly, 397 U.S. 254 (1970): no cutoff of welfare benefits before a hearing.
• Deuteronomy 24:14–15: “before sunset.”