Final answer:
The correct option is C). Preventing fraud is the most effective way to reduce losses from it, as it completely avoids the costs associated with fraud. Businesses can take proactive measures like installing security systems and regular inspections to deter fraudulent behavior.
Step-by-step explanation:
The most effective way to reduce losses from fraud is c. Preventing fraud from occurring. While detecting fraud early and implementing proactive fraud detection programs are significant, preventing fraud is the most surefire way to avoid losses. By taking pre-emptive actions such as installing a minimum level of security and fire sprinkler systems, and having regular inspections, businesses can mitigate the risks associated with moral hazard and discourage fraudulent behavior. Additionally, effective crime prevention programs raise the costs of crime through deterrence or increasing opportunity costs, which can lead to a significant decrease in fraudulent activities.