Luhn Algorithm: A Little Known Tool for Auditors

Buying with Credit CardLuhn Algorithm also known as ‘modulus 10’ or ‘mod 10’ algorithm, was created by Hans Peter Luhn in 1954.
It is widely used in Credit/Debit card numbers, IMEI numbers, and Canadian Social Insurance numbers.

What is Luhn Algorithm?

To understand what Luhn algorithm is, we first need to understand what is ‘modulo’. Modulo or Modulus is the remainder after dividing the number with another number. Consider the example 7 divided by 3 has; quotient 2 and remainder 1.
Therefore, modulo 10 equal 0 means after dividing the number with 10, the remainder should be 0. In simple terms the number (dividend) should be a multiple of 10 (divisor).

Continue reading

Advertisements

Relative Size Factor: Finding Outliers

In my previous article Auditing: Accounts Payable / Vendor Payments I spoke about Relative Size Factor (RSF) and how it can used to identify isolated outliers in vendor invoices. In this article I’ll try to show how RSF can be calculated in Excel.

The RSF test is an important tool for detecting errors. RSF test compares the top two amounts for each subset and calculates the RSF for each. The test identifies subsets where the largest amount is out of line with other amounts for that subset.

Continue reading