I recently gave my first mid-term exam at the new Big State School University. I caught three students cheating. I already know how I am going to handle it, but I'm inviting comments on what others would do.
The test is in a core class, and I allowed open book, calculators, and notes from the class. Everything else was disallowed. This was mentioned on three separate occasions in class. This is in the syllabus. But even then, three students brought in homework sets and hid them in their notes during the exam. My TA and I discovered these three separate incidences while quietly patrolling the classroom from back to front. We caught the students right at the beginning of the exam, so no damage had been done. We told the each student, "Those materials are not allowed." Each students put the materials away and continued with the exam. Each student was pretty frustrated with me. (I feel no guilt over their frustration, since they were, um, cheating). The official policy is to give the students a zero, but I let the students continue on since I caught them at the beginning.
I've been grading and it's clear that these student will fail themselves out anyway. Catching them cheating just makes me sad, and it makes me embarrassed that I'm at the same school as them!