Final answer:
Option (B), The most effective tool in fraud prevention and detection is typically Internal controls, which serve as an organization's first line of defense. Other measures like external audits, whistleblower hotlines, and codes of ethics support this but are generally secondary in terms of effectiveness.
Step-by-step explanation:
The single most effective tool in preventing and detecting fraud is usually B) Internal controls. These measures are designed within an organization to provide reasonable assurance regarding the achievement of various objectives, such as the reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.
Internal controls are pivotal because they are the first line of defense in safeguarding assets and preventing and detecting fraud. They include a range of checks and balances such as segregation of duties, authorization and approval processes, and physical controls over assets.
Other options like external audits, whistleblower hotlines, and codes of ethics play important roles as well but are not typically as effective as internal controls. While external audits can help detect fraud, they occur periodically and can be circumvented. Whistleblower hotlines are useful in that they provide a means for employees to report suspicious activities, yet they rely on individuals taking the risk to report. A code of ethics establishes expected behaviors, yet without enforcement through controls, it can be insufficient alone to prevent fraud.