afraid for niece and nephew due to sister's chronic lying

Hello,
I am a social worker who seems to have the tools I need to help others - except when it comes to my own family! My 34 year old sister lies constantly, to the point where I don't believe anything she says - even about basic, day to day things. Her lies range from the outrageous and hurtful to the seemingly pointless. When my nephew - now 6 - was a six month old, she called and alarmed my mother and I by saying that the baby and his father were in a bad car accident and were in the hospital. They lived a thousand miles away at the time, but if severe enough, we would have visited for support. A phone call to my brother in law a couple of days later to check in on their health revealed that there had been no accident at all! I confronted my sister, and she just changed the subject and refused to own up to her story. I was so upset that she would make up such a hurtful story that I couldn't talk to her for months. That seems to be the worst lie, but she lies about finances, her credentials, her day to day life. She refuses to acknowledge this, and just rolls her eyes and sighs when I tell her I can't trust her. "Here we go again" she says.

The thing is that no one in my family is confronting this, and just seems to tolerate this behavior. It drives me crazy. My father also has spent a better part of his life living a lie, and then has the nerve to say things like "I always taught you kids to tell the truth." Sometimes I feel like I'm losing it! I have to ration my time spent with these people because they bring me down and make me angry.

I am now especially concerned about my 6 year old nephew and 3 year old niece. These lies are eventually - if not already - going to have an adverse effect on them. I want to be able to somehow protect them from it, or at least buffer it, without telling them that their mother is "unwell." Any advice would be appreciated!

Thanks