Lying on your resume is never acceptable to any organization. In the case of Tracy, we understand that she lied on her resume and instead of explaining that she dropped out of MBA program just when she was about to complete, she instead mentioned MBA anyway in order to get the job even though it was not needed for the position she had applied for. Secondly, we understand that organization found out the truth through someone else and not through their own suspicions which means that Tracy had been doing a good job and no one needed to recheck her credentials and educational qualifications. We also know that Tray dropped out due to family reasons and had been very close to getting the degree. Now that Human Resource knows that Tracy did not complete her MBA and had lied on her resume, it is in a state of conflict and wondering how best to handle the situation. Using Badaracco's "right-right" framework, the HR would need to ask some important questions to itself. The answers to these questions will determine the best course of action in this case.

First the HR needs to know what values are at stake in this scnerio?

The first important value is that of honesty. We understand that if Tracy is allowed to stay at the firm, others would assume that it's okay to lie...

It would also send a wrong message to Tracy as she might not understand the value of being completely honest when applying for a job and this might cause problems for her too later in her life.
Secondly the HR people need to ask what values is the firm truly committed to? Is honesty really important to the organization, is sending the right message to other employees and potential employees critical for company's reputation? We must understand here that HR cannot take any decision without others getting to know the background since Terry is involved. Terry knows about the whole thing and it is entirely possible that he would tell others about the whole situation in either case especially if Tracy is not let go. So the company's reputation is at stake here. But HR needs to ask itself if honesty and preservation of the same are very critical to the company and does the company policy says anything about lying on the resume or anything else that would indicate how important truthfulness is for the firm.

How would the final decision affect the firm?

It is important for HR to find out how the final decision would shape the firm. If Tracy is allowed to stay, what will it say about the firm? And…