FWIW, I'm not a fan of forcing a fit, of a bike which isn't within the range of a good fit already. Nor am I a fan of excessive stem height over the headset, and this one is at what I consider the limit (personal opinion and bias here). If you need another three inches in height, the bike is too small, and there may also be leverage/strength issues with the steering column, though unless she's a hill climbing animal I wouldn't be worried.

You seem to have gotten a great bargain on this bike, and rather than spending dough trying to force a fit, I'd put some sweat equity into it, clean and fix it up and try to sell it at a profit. Then use the dough to get her a bike that fits her properly. There are so many good value used bikes out there that it shouldn't be difficult.