The school can demand all they like - it doesn't mean you are required to comply. Only a court can order your wife to pay the money.
Dismissal for gross negligence and recovery of lost funds are two totally different matters.
As Yvonne has pointed out, there are pretty complex good practice issues here too. Arguably and under certain circumstances, members of the Board/ the financial director of the Board/top management could be just as accountable, if not more so.
Don't be bullied. I hear you about the small town situation, but there has to be some sympathy for the position your wife has gotten into as well.
Who is the big bad wolf here?
EDIT: I think the situation referred to in post 6 relates to where there was criminal intent on the part of the employee. From the sounds of things - a rather different situation to this one. Here, the worst charges can be gross negligence and/or failing to comply with procedure.
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