If you report it then the grant money is gone and everybody in the lab loses their job and all the PhD students are derailed.
But that is the kind of thinking that condemns whistleblowing for the wrong reasons. To put it differently, people rather prefer to keep on pretending if that keeps their jobs than to do the right thing. And that makes everyone a fraudster.
I don't know why people always see dens of corruption and think that they ought to be protected, because of the jobs of the folks doing the corrupt work. Jobs are not the point of life, and we should accept that some jobs are bad jobs which should be eliminated.
Sure, it sucks for the students, but you have to introduce accountability in academia for it to stop being worthless.