I'm sure CPS has done some good some where without doing harm, but I don't know of any examples. I know three families that had been involved with CPS and they and I found CPS to be arrogant, power hungry, dictators. Of the four counselors (all female) in the office my friends and acquaintences had to deal with, one was married, two were part of the rainbow group (butch hair cuts) and one was single. No children among them. They learned their parenting "skills" from books.
I would suggest doing anything I could to help your sister in law before I'd call CPS. Continue to wash and clean and love your niece. Don't send her home with her new clothes, but do wash her dirty clothes and send her home in her own clothes.
Become a friend to her and her mom. I have lived in a couple of different areas where the neighbors were very standoffish and kept to themselves. I got to know my neighbors through food. I am a very good BBQer. When I'd BBQ a pork roast, or something else, I buy an extra one and take one to a neighbor. It worked very well. When you take your niece back, take something baked or BBQed to your SIL. You will eventually be invited in and to be a friend. That's when you can do lots for your niece and SIL. It could be she is ignorant of what is happening. I know one family that had two kids that wet the bed. The mom tried to get the bedwetters to take a bath or shower before they went to school. She finally decided that to get them to quit wetting the bed, she would quit insisting they shower figuring they would get discusted with themselves and clean and shower on their own. WRONG. They just got used to the smell and the smell became the norm.
The 3 year old's condition may simply have become the norm. Your showing the mom a better way may be just overcoming ignorance and may make it better for all concerned. CPS won't help. They will just issue and order with an "or else" tacked on the end and go on their way.
Good luck to you and yours.