The payment of a reasonable salary to a Clerk is a legitimate expense, although if not documented, the Council has been guilty of mismanagement. I wouldn't call it misappropriation. If the sum paid is disproportionate to the workload and in particular if there is any connection between the Clerk and those who made the decision, the Monitoring Officer may refer the matter to the Police initially. The Council clearly needs a lot of help and the Monitoring Officer may decide to focus on the future to ensure that there is immediate change. Neither the internal nor external auditors are likely to sign off the accounts. It sounds like another case where a more pro-active local association could have made a huge difference.
May I ask what your role is in this Council Helen? PM if you'd prefer.