First, tell your boss. Second, reach out to the employee and ask for the money back.
In no way am I offering you legal advice, and in no way has my comment created an attorney-client relationship. You are not to rely upon my note above in any way, but insted need to sit down with counsel and share all relevant facts before receiving fully-informed legal advice. If you want to be completely sure of your rights, you must sit down with an experienced criminal defense attorney to be fully aware of your rights.
First, talk with your boss. they might have agreed on some type of severance packet that you aren't aware of. if it is employee theft or embezzlement, have him report it to law enforcement. You are doing the right thing, but I don't want to see you get fired due to jumping to conclusions and not having open communication with your boss.
The information provided in this answer does not create an attorney-client relationship and is not considered to be legal advice. Mr. Leroi answers questions on Avvo because he strongly believes in public service from his years as a judge, magistrate, and prosecutor. If you need to ask any follow up questions because my answer did not fully address your question, feel free to call Chris or post an additional question. Thank you.
Depending on who the employer is, it may be a violation of a law, rule or regulation to pay a ghost employee- particularly if your employer receives federal funding. If you complain about that violation, you may gain whistleblower protection. i would need more facts to give you a complete answer.
I like the other answers... You are an employee? Every employee is a fiduciary of the business for which he or she works. One of those duties is to disclose to the principal (i.e., the management above you) all facts relative to the subject matter of the agency which might reasonably affect the principal's decision. In a sales situation, the employee is under a duty to seek to obtain the best price obtainable for the property when selling it; likewise, not to sell products of the principal on credit without first making reasonable inquiry as to the financial circumstances of the buyer. Here, you're concerned about money being paid out in exchange for, what you perceive to be, nothing at all... Well, your duty as an employee is to bring the matter to the attention of your direct superior. I don't think I'd contact the prior employee, or do anything else for that matter, until you have some direction from your superior.
Employment law for businesses Employee theft Credit Criminal defense Business Criminal charges for theft Criminal charges for embezzlement Employment Employee wages and severance pay Employee benefits Employee rights Employee protection laws Whistleblowing in the workplace Termination of employment Wrongful termination of employment Lawsuits and disputes