This appears to be asking two different questions: what is the procedure when something like this happens, and should the dealer get penalized by the casino.
The TDA procedure is:
Quote:
RP-4. Disordered Stub
When cards remain to be dealt on a hand and the stub is accidentally dropped and appears to be disordered: 1) first try to reconstruct the stub in its original order if possible; 2) If not possible, create a new stub using only the stub cards (not the muck and prior burns). These should be scrambled, shuffled, cut, and play proceeds with the new stub; 3) If when dropped the stub is mixed in with the muck and/or burns, then scramble the mixed cards together, shuffle, and cut. Play proceeds with the new stub.
So if the stub is dropped but not disordered, or it can easily be reconstructed, just pick it up and finish. If it's disordered, shuffle the stub only, cut, and deal. If it's mixed in with the muck, then all you can do is shuffle it all, cut, and deal. If someone's discards end up on the board, oh well.
As for dealer KITN, it sounds like maybe you're saying the dealer lied about what happened? I can't really tell. If not, then the dealer followed procedure fine, except that perhaps the room procedures might say the dealer should call the floor over before fixing the mistake (like one would do with an early burn and turn). I wouldn't necessarily think this issue needs that if the stub is clearly still ordered and separate.
If you care about punishing dealers lying, talk to the floor away from the table, and perhaps they will investigate and do something about it.
If you're asking what should happen about the dealer simply making an airhead mistake, mistakes happen. If this dealer makes more than a usual amount, you can complain to the floor away from the table, and maybe something will happen. Complaining at the table about a single mistake is a waste of everyone's time. Mistakes happen, there are rules for how to proceed, the rules were followed correctly here.