Hey Kym, Get a cup of tea (or maybe something stronger) and take a breather.
I hate to say you need to get on the same page with the principal, more like principal needs to get on same page as you do. Get your board together with a copy of your bylaws. Sit down together somewhere outside of the school (someone's home, the library, a local restaurant) and decide which of you has the best rapport with the principal. Now, I would say it should be the president, but if there is head butting going on perhaps a vice president could handle this part. Go in with the by-laws and show the principal that this organization was established to do x, y and z. Doing this involves fundraising. Your treasurer's responsibilities include verifying all withdrawals, deposits and expenditures. There are checks and balances in place to ensure that all funds can be accounted for and they need to be followed. (Take in a copy of the last issue of PTOToday showing how much money vanishes into thin air, and how many people are having their names on the front page of newspapers for missing PTO/PTA money. Explain that even the appearance of impropriety could bring this out and that you don't want this to be your 15 minutes of fame when someone tries to figure out where last year's money went.) Of course all of this assumes that you have by-laws in place that state these things. If your organization has been run without by-laws, then get some in place immediately and then follow them. Protect yourself, and protect the money that belongs to these kids. If I couldn't account for $25.00, much less $25,000, I wouldn't get much sleep at night.
You need to have checks and balances, too, for how the money is spent. This is usually in the form of an annual budget that is prepared by the board and then approved by the general membership. Any changes to the budget would require general membership approval. That does not mean that every time a check is written you need to call a meeting, simply that line items that are added, deleted, or significantly changed need to be brought to the attention of the membership.
Be sure that your bylaws state that two signatures are required on all checks. (Yes - I know, not all banks will enforce this and they may cash a check with only one signature!) Also - given the picture you have painted, I would have to say that the principal's signature is NOT one of the ones allowed on the check. I realize it is done in many schools for convenience purposes, but I also think it is a conflict of interest and won't let it happen on my watch. Go to the bank yourself, get the signature cards yourself, and be sure that they are accurate. Talk to the branch manager about this if that is what you have to do. One signature should be the treasurer, the other can be left up to the board and you can say that "the treasurer and any other officer" or "the treasurer and either the president or vice president" or something along those lines.
Do not let one more cent flow out of your PTO without proper documentation. No receipt, no money.
I am certain that my stream of consciousness is not in the correct order, but these are all things that need to be done.
It really sounds like you are a group with lots of heart, lots of money, but not enough structure. You have come to the right place because there are so many here with so much information and all the willingness in the world to share their experience and information with others.
And one more thing - Is there another bank in town? Go there! If there is a problem with an employee of the bank releasing information on an account to the principal who has no business knowing that - I would go to the bank manager. If that employee IS the branch manager, I would go higher than that. There are confidentiality laws in this country to be observed.
Good luck to you and keep up the good work for the kids' sake.