Gusto is right about putting your manager in a spot like that. Middle managers tend to get a little uppity when it comes to being directed by underlings.
If you're good at being diplomatic, I think your best bet would be to sit down and write a letter bringing up some of the options mentioned here. You have to be careful not to sound challenging or threatening, but get everything you can in it. Talk about the position you've been put in, how upper management might like to know, the illegality of it and other people that have witnessed the thefts if they're comfortable with it. If you word it without saying "I'm gonna call the cops", then hopefully your manager will appreciate where you're coming from and at the same time realize that others are also concerned. Keep a copy of it incase you do need to forward it to higher-ups.
That all depends on how much shit you want to stir up though. Reality is that places like that prefer the complacent type and you may have a battle on your hands. But a little letter off to her bosses as you're on you way to your next job could be a nice farewell gift.
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