Focus on projects, not tests.

If you want people to be able to code, judge them by their ability to code.

Plus that way your graduates have a portfolio as opposed to a grade list that says nothing about their usefulness in the market.

If you must do tests, at least mimic real world conditions:

- Digital, no paper
- Internet allowed (have rules on copying SO if you must)
- BYOD, let people work in their customised environment