A coroner's inquest into the mysterious disappearance of a cult leader and his family in Australia has heard that police failed to properly investigate all evidence and possible sightings.

Internet cult leader Simon Kadwell, his family and a lodger disappeared in 2007.

Kadwell, his partner Chantelle McDougall, their daughter Leela and lodger Tony Popic left a home full of furniture in the West Australia town of Nannup, 280km south of Perth.

There have been some alleged sightings, senior sergeant Gregory Balfour said in his testimony, including four in the Busselton area in 2008, however, they were not investigated.

Three months after McDougal disappeared, prison workers reported finding a woman's T-shirt along with the smell of "dead flesh" in bush land near Northcliffe, Balfour said. That report was not fully investigated until 2015, but bush fires had swept the area by then.

Items belonging to McDougal were also found at the Nannup tip, but were never recovered.

Balfour went on to described Kadwell as a self-styled shaman with a cult following online who discussed plans for a "peaceful" family suicide pact. Kadwell reportedly told his online followers that he planned to take drugs after McDougall and Leela to allow him time to bury their bodies in the forest.

Kadwell, however, got cold feet and instead considered moving the family to an isolated location.

Days before disappearing, Kadwell was stopped by police while driving in Nannup, Balfour told the inquest. The officer involved said Kadwell appeared uncomfortable with the questions about his identity. Balfour said the officer believed the interaction may have prompted the family's disappearance.

According to ABC, Kadwell is believed to have stolen his identity from an associate in his native England. Police established Kadwell's real name is Gary Felton.

The inquest also learned about Popic's last known movements. Popic, who lived in a caravan parked on the family's property, is believed to have checked into a backpackers' hostel in Northbridge on 15 July 2007, a day after the last reported sighting of McDougall.

Popic is believed to have used a fake name to travel on several bus and train routes in the two days after leaving Nannup. His final destination is unknown.

McDougall's parents, Catherine and Jim, told reporters outside the inquest that they will never give up hope.

"Sometimes I think they have just sort of gone off the grid and are hiding somewhere and just living their quiet lifestyle," Catherine said. "Then Sometimes I think that something has happened to them. That they've been killed or committed suicide or something like that."

The Nannup landlord, Lyndon Crouch, reported finding a note by McDougall claiming the family had moved to Brazil. Crouch told the inquest he believed he family followed through with their travel plans.