1. I thought we were talking about the Torah position on this.
2. Before a person could be accepted as a prophet, he would have to provide some unequivocal sign, the most common being an accurate predition of the future. See Deuteronomy 18: 21 and 22.
Since it was the Sanhedrin's job to see to it that the Torah was followed properly, it was their job to make sure that Deuteronomy 18: 21 and 22 was fulfilled properly.
Obviously, not everyone could just come and call himself a prophet. He had to be chosen by G-d. Sanhedrin was the only body which could verify that. First an individual would have to be outstanding in piety and knowledge of Torah. Then, he had to make an accurate prediction of the future 3 times in the presence of Sanhedrin. If he does, then his prophecy is assumed to be true, and he is accepted as a prophet. If even the most minor aspect of his prophecy fails to come true, then his prophecy is judged to be completely false. In the case of a false prophet, only Sanhedrin has the authority to render judgement.
The source for this is various places in the Oral Torah.
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