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 StructureQuarterly Profit Earnings

Quarterly Profits 1986-1989

1 2 3 4 5 6 7 80

50

100

150

200

250

300

350

400

342

267

321

157

33

349

132

289

In Millions 1986-1989

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 1990.

500 gas accounts are needed for 30 days operation. 6000 gas accounts would have to be transferred to a hedge account per year with a total of 24,000 total by 1994.

Gas Oil0

50

100

150

200

250

3264

37

7544

86

1990

1989

1988

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.

Male 1 Male 2 Male 3 Female 1$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$50,000.00 $52,000.00 $55,000.00

$32,000.00

Male vs Female Wages

What Went WrongFailure 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.