You can always talk to her and her mom and then say you want to talk to her mom alone and ask her mom how she wants to handle it. I'm guessing her mom won't mind her administrating the punishment but it's a good idea to talk about it first and get on the same page. Ask her mom about the money, as well. Say "she did a good job and took care of the dogs so I don't know if not paying her is fair." Maybe offer give the money to her mother and let her give it to her in the future after her grounding or whatever is up. My parents would take things away from me and then give them back when I met a set of expectations (like grades or cleaning the house or whatever.)

I'm almost positive this is what happened: she mentioned to a couple friends that she was housesitting for you, they decided that they were going to drink there, her friends told some others, maybe she had a guy in her life that she likes but he doesn't respect her because hes a 17 year old boy, and all the sudden a couple people drinking turns into the entire school. The biggest party we had at my friends house started with 5 of us and 5 of her brothers friends. Suddenly people were just showing up. It gets out of control really fast. And that was before the time of facebook. The first party we had we didn't get caught and that's why the next one turned into a shitshow. The one we had after that didn't though because we were not in the mood to clean or be punished again.

IMO, you have to tell her mom. It's not even a question. She's probably expecting it already and if you don't she'll just feel immense relief and not learn anything.