This honesty-based question is meant to test your character, understand your critical thinking and communication skills, and reveal how you deal with awkward or uncomfortable situations. Indiana University has rules for being a student at their university, regardless of what program you are taking. It is your responsibility as a student to read and understand the Student Code and all policies mentioned on the Code of Conduct and Policies page on their website. One of those policies is called the Cheating and Plagiarism Policy, which prohibits academic dishonesty of any kind, including cheating, plagiarism, violation of course rules, alteration of course records, and fabrication. While the university's website is somewhat vague when asked what a student should do if they see a classmate cheating, they mention that all students are expected to uphold and maintain academic and professional honesty and integrity. For those reasons, it is best to report a classmate to one of your instructors or professors if you discover them cheating.
If you have found yourself in a situation like this, you can draw on that story for your reply. Be careful not to mention names or slander anyone, as you can rarely recover from behavior like that in an interview.
