I am aware that my coworker is stealing from our company. Am I obliged to tell the police or my employer? What if I don't?

You are correct that the crime your friend is committing is embezzlement, which is the misappropriation of property to which one has rightful possession.  Embezzlement is different from larceny in that the person possesses the property lawfully, in a position of trust, and then misappropriates or steals it when they take it for their own use.  Employee theft is by far the most common form of embezzlement.  Common examples of embezzlement by employees are petty cash and register thefts, taking home company property, recording discounted sales of retail merchandise and similar techniques.  When you talk to your friend you can tell her that it doesn’t matter if she intended to repay or replace the property – a common response when employees are confronted.  Embezzlement is a state crime and penalties vary.  However, generally the severity of the penalty is related to the value of the property embezzled and will include repayment of that value, probation, a fine and/or jail time.  You or your friend would be well-advised to consult an attorney who is experienced in criminal defense work to explore ways to stop the improper conduct and minimize its impact on her and your employer, and which may help reduce the legal consequences to your friend.