I used to work in a company that has close ties with the academia. One of the professors ("Dr A") wasn't/isn't using his funding properly by hiring his long-time girlfriend as his research assistant. He and his girlfriend showed up at company events as a couple so there's no doubt about their relationship.
After I left my previous company, one of the profs ("Dr B") in the same area of research who works in a different university pointed out to me that the government's funding agency prohibited the researchers from hiring relatives and partners using the money. At Dr B's department, a prof had been fired by the university for violating this rule.
No one from my previous workplace and the circle of researchers bothered to report to the funding agency about Dr A's violation. I was temped to be the whistleblower after leaving that workplace, but was taken back because it's obvious who was the reporter: There were not that many of us in the circle. Even if the funding agency had a whistleblower policy in place, I doubted if it could protected me as someone who worked in the industry.
I'm not seeking any heroic stories about penalizing the profs. Instead, I'm wondering if anyone has encountered a similar problem. In addition, I'm also interested to know how the universities and the departments deal with this kind of issue as peacefully as possible.