Three employees of an Anderson department that receives federal money for affordable housing lost their jobs after they failed to notify city and federal officials that they had relatives living in homes paid for with the funds.

Interim economic development director Greg Winkler said the workers violated procedures by failing to inform the city's attorneys and federal officials that they had conflicts of interest.

Winkler told The Herald-Bulletin that the department receives more than $1 million in Housing and Urban Development funds each year. An investigation showed more than $600,000 of that money was used to house employee family members in HUD homes.

At least five cases have been found in which relatives were housed in HUD homes. Winkler said that could rise as the investigation continues.

Four of the violations stemmed from the HOME program, which allows people to lease a house from the city at a subsidized rate. Renters who want to buy the home within three years have half the money paid in rent applied toward a down payment.

At least one violation was tired to the Community Development Block Grant program, which uses funds to build homes for families.

Winkler said the Community Development Department is required to follow specific procedures to divulge any conflicts of interest, including seeking a review by the city's legal counsel and HUD authorities. Because those procedures weren't followed, the city had two options to resolve the conflict, he said.

"The people in those homes either have to move out of the homes, or the community development employees involved in this have to be removed," Winkler said. "It has to be one or the other. The feeling on the part of all parties involved is that it doesn't make sense to ask family members to move out of the homes.

"The last thing we want to do is in any way punish the folks that are receiving benefits. From our perspective, it's not their fault."

The city is not releasing the names of the fired employees.

Winkler said the city notified the Indianapolis HUD office of the violations and expects the Federal Housing Authority will conduct an audit. Anderson may have to repay some of the HUD money because of the violations, he said.