I'll second (third?) the PP who said - the grandparents should not question the child further about this incident. If she brings it up, they should listen neutrally, but not ask leading questions. They should write down what she says, using the exact words of the child, and dating all written records. A notebook for this purpose would be ideal. They will want to provide those to CPS.
A trained interviewer will be able to elicit the most accurate, appropriate information - and will be the most believable witness for the court system, should a criminal or custody case arise. There are some excellent child psychologists who are trained to do skilled interviewing in a developmentally appropriate way that is not traumatic or fearful for the child. The ER or the police in the community will know who to contact.
Calling CPS is appropriate given the information you have shared. The adults responsible for protecting this little girl need to take steps to protect her, and it is sad that her mother has been unable or unwilling to do so. I wouldn't confront the mother - she may threaten or coach the child to change her story - just encourage your friend to call CPS and enlist some professional help.
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