Parenting is hard

Today I am faced with a parenting dilemma. My child said some things to someone in a position of authority that reflects very badly on my as a parent, and it was categorically untrue. Now, there's no way to argue it, because of course a parent would deny the things she said regardless of truth. In this case, things like squishing them in the back of the car without the legally-required booster seats, and having cats that "poo and pee on everything" (Which could only partially be proven otherwise; the meeting was at my house so clearly it was untrue at this time, but the meeting was planned so I had the advantage of knowing they were coming).

The problem is that Rachel has attention-seeking issues. People often say how full of 'personality' she is, and that "she belongs on stage". I've spoken to her repeatedly about the difference between being honest and being dramatic. But the moment she has an audience, all that flies out the window and she will happily invent stories that incorporate things she thinks her listeners want to hear. This quality should serve her well as an adult, but it's really making things sticky for me right now.

My dilemma is this:

Do you let your child know when you are angry at them? Is it healthy or unhealthy for her to know that I am quite angry with her for the lies she told to get attention? Not just disappointed, angry. I am angry at her. I am frustrated with her. I'm mad at her. Right now I'm staying away from her because I don't have anything nice to say and I'm not ready to forgive her or tell her it's ok. It's NOT ok. She's in deep shit.

I'm stuck between a rock and a hard place as to how to deal with this. I've grounded her to her room for the rest of the day (at least, I will revisit this when The Daddy gets home and is briefed on the situation), but does that reflect badly on me too? Could that be interpreted at punishing her for not saying what I wanted her to say (as if I'd coached her to say a lie, and what she said was the truth), rather than what it is - punishing her for telling bold-faced lies in an effort to garner attention for herself? She is by no means ignored, this is her personality 24/7/365, and anyone who's ever met her will attest to this fact.

She's seven, nearly eight. I get that her little brain is still completely self-absorbed and she cannot make the connection between what she's saying and the implications it has for her family unit. But I need to put a lid on this before she does permanent damage.