Aided by the then chair of governors, she also installed a video camera in a spare classroom and focused the lens on a caretaker's gate to show that work being claimed as overtime took place in school hours.
For her pains, she was suspended for making judgments "incommensurate with her experience" and a very public two-year legal wrangle followed - culminating in Education Secretary Gillian Shephard's order last week that Mrs Watson must be reinstated because she had not been given a fair hearing.
Labour councillor Charles Cracknell, the current chairman of governors and a member of Humberside education committee, has been told by the Department for Education and Employment that Mrs Watson was unfairly dismissed. This week the school agreed to discuss her reinstatement.
The case raises questions about the future of those involved in her suspension, including the governing body, her headteacher Roy Cooke and the Labour-controlled education authority. No one at the school or council will comment about whether any action was ever taken against the caretakers.
Mrs Watson tells her tale in a voice tinged with tiredness and stoicism. She laughs as she explains how she was forced to resort to desperate measures: "I do not know where the idea for the thread came from. But in the preceding two years we had presented all the possible paper evidence that work was being claimed for which was not being done. It was a last resort."
An internal report prepared for Humberside County Council last year showed how the mother of two had correctly identified financial abuses dating back to 1990.
She says she is not disillusioned by her experiences, but adds: "I am, however, saddened by it all."
She has received a lot of support and as a result of her two-year suspension has helped form Redress, a network to support bullied teachers, and is now its national secretary.
With a return to Sydney Smith on the horizon she confesses: "It has been a long four years since the whole thing began and I have mixed feelings about my return. But I feel if I do not go back then people will not bring cases of concern to a head and believe they can succeed. My solicitor said to me, 'you left the school in disgrace out the back door'. I would like to return through the front door with my head up."