Jackson Daniels graduated from Lynchberg State College two years ago. Since graduating from college, he has worked in the accounting department of Lynchberg Manufacturing. Daniels was recently asked to prepare a sales budget for the year 2016. He conducted a thorough analysis and came out with projected sales of 250,000 units of product. That represents a 25 percent increase over 2015. Daniels went to lunch with his best friend, Jonathan Walker, to celebrate the completion of his first solo job. Walker noticed Daniels seemed very distant. He asked what the matter was. Daniels stroked his chin, ran his hand through his bushy, black hair, took another drink of scotch, and looked straight into the eyes of his friend of 20 years. Jon, I think I made a mistake with the budget. What do you mean? Walker answered. You know how we developed a new process to manufacture soaking tanks to keep the ingredients fresh? Yes, Walker answered. Well, I projected twice the level of sales for that product than will likely occur. Are you sure? Walker asked. I checked my numbers. Im sure. It was just a mistake on my part. Walker asked Daniels what he planned to do about it. I think I should report it to Pete. Hes the one who acted on the numbers to hire additional workers to produce the soaking tanks, Daniels said. Wait a second, Jack. How do you know there wont be extra demand for the product? You and I both know demand is a tricky number to project, especially when a new product comes on the market. Why dont you sit back and wait to see what happens? Jon, I owe it to Pete to be honest. He hired me. You know Pete is always pressuring us to make the numbers. Also, Pete has a zero tolerance for employees who make mistakes. Thats why its standard practice around here to sweep things under the rug. Besides, its a one-time eventright? But what happens if Im right and the sales numbers were wrong? What happens if the demand does not increase beyond what I now know to be the correct projected level? Well, you can tell Pete about it at that time. Why raise a red flag now when there may be no need? As the lunch comes to a conclusion, Walker pulls Daniels aside and says, Jack, this could mean your job. If I were in your position, Id protect my own interests first. Jimmy (Pete) Beam is the vice president of production. Jackson Daniels had referred to him in his conversation with Jonathan Walker. After several days of reflection on his friends comments, Daniels decided to approach Pete and tell him about the mistake. He knew there might be consequences, but his sense of right and wrong ruled the day. What transpired next surprised Daniels. Come in, Jack Pete said. Thanks, Pete. I asked to see you on a sensitive matter. Im listening. There is no easy way to say this so Ill just tell you the truth. I made a mistake in my sales budget. The projected increase of 25 percent was wrong. I checked my numbers and it should have been 12.5 percent. Im deeply sorry; want to correct the error; and promise never to do it again. Petes face became beet red. He said, Jack, you know I hired 20 new people based on your budget. Yes, I know. That means ten have to be laid off or fired. They wont be happy and once word filters through the company, other employees may wonder if they are next. I hadnt thought about it that way. Well, you should have. Heres what we are going to doand this is between you and me. Dont tell anyone about this conversation. You mean not even tell my boss? No, Pete said. Cwervo cant know about it because hes all about correcting errors and moving on. Look, Jack, its my reputation at stake here as well. Daniels hesitated but reluctantly agreed not to tell the controller, Jose Cwervo, his boss. The meeting ended with Daniels feeling sick to his stomach and guilty for not taking any action.

What is the likely result of Petes zero tolerance of employees making mistakes?

Jonathan Walker is probably failing which of the Rest Stages?

If Jackson Daniels decides to do something, what is the one element missing in the chain of communication thus far?

-The failure to document the admission in writing

-The failure to report to the Comptroller

-The failure to report to Internal Audit

-The failure to report to Cwervo