How long have you had this dcm? Are these behaviors new to her?
I'd be extremely nervous about having her as a client, even with just the information about her reporting to CPS because she was upset by someone.
Just hand her a written termination notice, 2 weeks is normal, stating you can no longer meet her family's needs. And don't explain anything, just keep repeating that line to her. Send her to your local childcare resource and referral agency. Expect backlash because it doesn't sound like she'll accept it well. So have all your ducks in a row in case the state visits you. You might also want to warn the state about your situation; they may be very acquainted with this person.
Good luck!