Honestly - let her know exactly what you said here.
If it was short term emergency care, then it would be "ok" (not really but better than being shot or whatever), but as a long term care facility she is doing more harm than good.
Maybe try to help her get in touch with a few rescues who can take dogs on a more long term basis, and place as many as possible.
Then offer to help her put in place a plan that would be more feasible for her as a rescue. Perhaps she only takes on 1-3 dogs and only on an emergency basis to be held for a few days until a space opens up in rescue. Maybe if you give her a plan and help her out of the mess she is in, she will accept the help.
IF she fights you on this, and decides her way is better - then, IMO, you have every right to report - let her know this. Either she works with you and XXX Rescue to get her place in shape, or you will have to intervene, for her sake and the dogs.