It seems to me that this is the sort of offence which shouldn't get a second chance. It is such a blatant abuse of either common sense or the law or both as to be completely inexcusable. Any way you slice this, the person in question, if remotely guilty of such actions, has no business anywhere near aeroplanes or training schools. Small snowballs? Small fireballs more like!
It think it likely that were the CAA informed of this; not a lot would probably happen. They would demand proof and nothing other than a 'raid' on the flight school, seizure of logbooks and booking out sheets and comparisons thereof would do the trick. Would the CAA initiate such an appropriate action? Indeed, whom would you contact there in the first instance in order to file a report? Having made contact though, what the CAA could do would be to set a mole in place. A relatively experienced and objective flyer with some instructional experience, pretending to be an ab initio enthusiast, would perhaps be interesting? It sounds as though the whole flight school is pretty rotten and needs to be taken out?