Felony child abuse (Penal Code section 273a) covers a situation where a person, under circumstances likely to produce great bodily injury or death, willfully causes or permits any child to suffer, or inflicts unjustifiable physical pain or mental suffering.. OR... a person who has care and custody of a child and willfully causes or permits the health of the child to be injured, or placed in a situation where the child's health or safety is endangered.
As a felony, it carries up to 6 y ears in state prison. It is a "wobbler" and can also be a misdemeanor, carrying up to a year in county jail.
If they can prove you were in a position of responsibility over the child, KNEW what was going on and permitted the situation to go on, you could face charges. If you're being charged with a child abuse crime, it can impact the interaction not only with the child in question, but also your own children...
Keep quiet until you speak with an attorney to protect your rights. This is NOT something you want to mess around with.
I think you have a strong defense here. If your wife was the only guardian of the niece, you should not be charged with neglecting her. Just because she lives in your house does not necessarily make you legally responsible to protect her. Get a lawyer immediately. Do not wait to see if you are charged. Do it now. And don't answer anyone's questions about this.
What you DO need to think about though, is this: If your wife IS abusive to the niece, do you really know what she is doing with YOUR children when you are away? You could wind up personally responsible if they discover any kind of abuse toward YOUR children. I would be very concerned with that, especially if CPS or the D.A. feel frustrated from not being able to charge or convict you on the niece. So be sure there is not a problem with your kids too.
I forgot to mention: assuming that you are able to avoid any conviction, you might also want to go back and get this arrest and the record of the court proceedings sealed and destroyed with a "factual innocence" petition. You can read about this process at http://lawyer-expungement.com. Good luck.