From my perspective you have little choice but to make another report when you have specific observations. Obviously CPS is responsible for their actions and all yuo can do is file the report. be sure to make the report in writing (as well as by calling). You did the right thing.
We are sure he has been exposed to some sort of sexual behavior, his mother is a young women and she spends a lot of time partying and has lots of people over that stay for weeks at a time and there usually a lot of things going on that shouldn't so being that he's acting like this is not surprising I am just wondering how can we reverse this problem before it gets worst?
Do what the Dr. said and keep your child away from his cousin and aunt/uncle. It is not worth the risk, once you do what the doctor said. Your responsibility is to keep your child safe and make sure that he does not learn this bad behavior.
We have reported awful things that we seen occur, but surprising she was able to get him back the same day CPS said that they felt that the child was no in any type of danger, and all it did was make the mother mad at us and she took the child away for months so were not sure what to do at this point...Thanks for all your advice.
If you know this is going on and you are not intervening on your nephew's behalf you are unwittingly colluding in this irresponsible parenting. His mother is acting in a neglectful way and those who know about it have an obligation to report it. She should not be parenting this child.
Do you have a particular question? It goes without saying that your son should not be left unsupervised with your nephew. This sort of behavior does not occur spontaneously in children. Somehow your nephew has been exposed to sexual behavior of the sort he is copying. Do his parents know about this? If not, you have an obligation to inform them.