Down Fall of Resources Unlimited MSM-630 Assignment 11.1 Jeff Lee February 21, 2015

Content  Company History  Profit Structure  Gas & Oil Accounts  Management Style  Accounting  Lines of Communication  Employee Salary Discrepancy  What Went Wrong

Company History  Resource Unlimited formed in 1985, as a result of a merger between two natural gas pipeline companies.  The result was the largest gas distribution network in the U.S. with over 38,000 miles of pipeline.  Soon after Resources Unlimited was formed, the natural gas industry is no longer regulated by the federal government.  As a result of deregulations Resources Unlimited performs some questionable accounting practices in order to stay in business.  Resources Unlimited files for bankruptcy in June 1994  Resources Unlimited is involved in a possible sexual discrimination lawsuit concerning wages.

Profit Structure Quarterly Profit Earnings

Gas & Oil Accounts  The estimated growth for oil accounts from 1988 to 1990 is about a 17% increase per year or roughly 11 new oil accounts.  If you use the same 17% increase per year for gas you will have 44 total gas accounts in  500 gas accounts are needed for 30 days operation gas accounts would have to be transferred to a hedge account per year with a total of 24,000 total by 1994.

Management Style  CEO used complex financial instruments which made it difficult for anyone else in the company to understand the clear state of the business.  The CEO had his on agenda and did not consult with anyone from the organization to see if his vision was even feasible.  CEO ignored concerns from lower management.  Used questionable and almost unethical accounting practices.  Did not have a clear business plan for how the company would cope with no longer being regulated.  Did not treat their employees fairly which is the reason for the sexual discrimination lawsuit over wages.

Accounting Practices  Sr. Management used complex financial instruments called derivatives and hedges to absorb the risk of the cost and price swings.  Accounting department felt that the corporate profits and quarterly sales reported to the media were skewed.  Sr. Management estimated corporate profits that were considered unrealistic.

Lines of Communication  There were not any clear lines of communication.  Sr. Management used complex financial instruments in an attempt to hide information from lower management and Wall Street.  When concerns were presented to the CEO from lower management it wen unanswered.

Employee Salary Discrepancy  The discrepancy between the 3 males and one female wages is just beyond one standard deviation.  The female employee would have not have a solid case for a law suit but could still file one and let the judge decide.  The female employee should receive a $5000 raise and that should halt the lawsuit for the time being.

What Went Wrong  Failure to have a business plan for how the company would react to not being regulated.  Not having a clear line of communication between upper and lower management.  Not being honest and using complex financial instruments in an attempt to hide how the company was performing.  Not paying their employees the same amount especially if they are doing the same job based on sex.