Well they claim the final interview involved asking the candidate very specific questions about the town they claimed to be living in, and hold up government issued ID to the camera.

My assumption based on this was they weren't certain it was someone malicious and they were double checking their own conclusion. If not it makes no sense to tip the candidate off that you're suspicious about them.

At that point I'd say asking the candidate outright is better than playing a weird game of "Name 5 restaurants not on Google maps in the town you live in".

But if they were sure, then yeah, skip the interview altogether and forward the information to law enforcement.