What should I do with the money designated for student gifts that I spent, and am I obligated to donate it or return it to the shaykhah, given my embarrassment in informing her that I spent it?

The remaining money from the teachers' donations for gifts must be returned to the teachers, unless they authorize donating it to the mosque or other causes. If it is impossible to reach them and there is no hope of doing so, it is permissible to donate it on their behalf, acting within what is possible. This also applies to the rest of the teachers; it is not permissible for them to donate it without the permission of the other teachers. As for the sheikha, she has no relation to the money, as it belongs to the teachers.