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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