As an employee of this company, you should be very aware that anything illegal or unethical this employee does that YOU know about can reflect on YOU. You have a duty to your employer to report anything you see or have seen. If it turns out that ONE manager just above her is allowing her to get by after having been caught padding her timecard, then it should be taken a level higher... or to human resources... so that the company management understands that there is a problem swept under the rug. Your position is that you know that the economy is tight and that you want your company to succeed. You don't want to play police over a person who has already proven to be less than honest.

Be aware that often this kind of person is politically or family related to someone higher than the manager involved. You should check that out first.

Personally in this economic blundering time, I'd be afraid to risk my job on some timecard cheat who might be connected, but maybe I'd put in an anonymous typed note... typed and printed at the library.... and see if it creates any change. Send it to the top guy. Just keep in mind that anonymous notes don't usually get more than a cursory glance. If you give enough details, somebody might take it seriously.

Good luck.