I have a feeling a lot of her problem is that she doesn't want to loose her Single Pension (is he her only child?) if he is her only child or youngest then she would have to change payments etc. That may be part of her motivation for wanting him to stay with her. Either way she isn't having him for the percentage of care that she is probably claiming for FTB......and when money comes into things it can get dicey.

I too would try and contact legal aid to get some advice and maybe get the ball in motion re legal care. Re Centrelink if he is living with you even if it isn't through a court order you have the right to ring and notify that he is now in your care. That would open a huge can of worms though as she would get a letter asking her to verify care etc etc. So you would need to be prepared for the repercussions.