Seriously!!! How we can trust a pilot lying on our lives?!! How Oversees logbooks by the way?
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as
@Ryanb said, one way it comes up is a checkride. Another is a deviation, accident or accident in which the FAA asks to see them and has some reason to question the entries. The penalty, BTW, under FAR 61.59, is typically revocaion of all FAA certificates.
Here are two interesting ones in which it happened. In
FAA v Gonzalez, the pilot padded his flight time for a type rating application. He put 210 hours of Westwind time on the application when he had only 87. He defended on the bases that he only required 25 hours so the overstatement didn't matter. Bye-bye pilot, flight instructor, and medical certificates.
In the other
FAA v. Crow and Pearson, two flight instructors claimed they gave multi dual instruction to each other in an effort to build up their PIC multi time. That logbook review came up in an incident investigation. There were a couple of interesting facts in that one which lead people to reach different conclusions about what it means. The logbooks were described as mirror images of each other - same flights, same day, same plane - about 200 of them. After being caught, it appears they added at least some after-the fact signatures and safety pilot notations. The NTSB looked at a number of things, including rejecting the explanation that "they were behind in their paperwork" to account for the lack of instructional entries, and the implausibility of two CFIs really giving "instruction" to each other during 200 flights over 7 months.
If the FAA thinks it's particularly egregious, they might even refer it to the US Justice Department for criminal prosecution. That seems to still be pretty rare in the pilot certificate world, but appears to be growing in the medical certificate world.