Meanwhile they collect money from the advertisers.

Does Google credit the advertisers when they cancel click-bait websites/apps?

I know Google has a refund process that ad buyers can try to use if they have evidence of fraud.

However, does Google pro-actively do refunds when they cancel fraud sites/apps?

The email they send when you're terminated claims they refund the advertisers

Although if your app is removed from Google Play, they'll happily still display AdMob ads in your app while telling you that you can't collect the earnings because your app was removed from Google Play.

Until then they are happy to get paid by advertisers to show ads on spam sites?

Payout thresholds for Adsense are quite low. But it's right, in these cases they'd have to reimburse the advertisers. They could keep their share for investigation and running the ads but at least the amount that was due to be paid out should be reimbursed.