Of course, you want to be an author! It's been accepted for more than 200 years that a scientist, at the end of the experiment, has a duty to publish, so it's better to accept at the very start of your career that papers are your product. How else can the world know what you did, replicate it, and assess its worth?
Recognizing this fact, society has given published articles a wider significance, and your papers are the coins that get you along the steep, up-hill academic toll road. But what researchers--authors--tend to overlook in the fight for credit is that the coins have two sides--one is credit, and the other, inseparable, is responsibility for the work's integrity.
What does that mean? Given that scientific work is not finished until it is published, the paper is an integral part of the work. This implies that, from the design of the experiment through the gathering of data, analysis, writing, and publication, the entire work is trustworthy.
When we read a scientific article, why do we automatically believe that, whether the authors are correct or not, they are doing their best to give us a full, clear, honest, and fair account of what they observed? Because we instinctively realize that we have to--there's no other way for us to function.
The readers, then, give the authors an enormous amount of trust and, in return, expect the authors to take complete responsibility for their articles. Sometimes this trust is misplaced, and when doubts are expressed about the integrity of the work, all the co-authors may point fingers at one another, with no one taking responsibility. This is one of the reasons why many major journals in clinical medicine demand that all co-authors disclose to the readers exactly what part they played in the work reported.
How does this apply to the mess that Terry and his lab are in?
Terry's results could not be replicated. The usual course of action would be to ask Terry to replicate his own experiments under supervision right there and then and also, perhaps, in Bob Smith's lab. Usually, everything would be resolved at this stage, because Terry or Bob could show each other--and Sara--where one of them went wrong.
However, let's assume that Terry was unable or unwilling to do this. The altered lab books suggest deliberate falsification and fabrication and, at this point, the PI, Sara, has a duty to inform the institution's administrator in charge of handling the process of inquiry and investigation of allegations of possible scientific misconduct. It's the institution's job to investigate, adjudicate and, if necessary, sanction Terry and to do all of this according to its regulations--which must be in accord with government-wide rules. So the institution must then secure all the evidence and perform the investigation, taking care that investigators are chosen who are without conflict of interest. In addition, the institution must inform Terry's funders and make sure that the editor of the journal that published Terry's paper is aware of the findings.
Let's further assume that this has been done and that Terry is found to have fabricated the results. The first remaining issue is this: The five co-authors--Sara, William, Tina, Mary, and Toby--all shared in the credit, the publicity, and the glory. Do they take no responsibility for their article? After studying cases of multiple fraudulent papers, I can say that the co-authors will invariably argue that they had no idea that the results were faked and will do everything to distance themselves from Terry, relying on a view of science that allows them credit without any responsibility.
A more rational view is to say that anyone who is an author is responsible for some important part of the article, and one or more of the authors is able to act as a guarantor for the whole, so no one who appears as an author can escape all responsibility. The problem here is that at least three people should never have been listed as authors in the first place and will now be made to regret this deeply. Mary and Toby provided research materials, but that doesn't justify authorship, merely acknowledgment. Perhaps years of having to explain to people that they are not crooks will convince Mary and Toby of this. Similarly, Tina simply "edited" the paper, and she, too, should only be acknowledged because, unless she is prepared to take responsibility for the faked results, she had no important role.
So what about William and Sara? They had the idea in the first place, and it seems that they designed the experiments--two important contributions, justifying authorship. But the first person to notice any problem with the lab notes was an outsider. So it's clear that William and Sara, while happy to bask in the glory that Terry's paper has brought them, had abandoned their responsibilities to Terry to teach, check on, and supervise him. To trust, but also verify. Why weren't they going over Terry's results with him every week and challenging him to show them? Although a smart, committed liar may get away with it, gross fabrication can't easily occur if supervision is close. William and Sara may suffer no more than public humiliation for abrogating their duties, but this should be enough to make them more diligent toward their graduate students.
The next issue is correction of the literature. Sara as PI has a duty to ask the journal editor to publish a retraction and do so prominently, citing the original article and giving readers the reason for the retraction. In addition, the indexing databases must be informed, so that they can link the retraction to the retracted article.
Finally: Terry's future in science? Forget it. Trust is an on/off switch, not a rheostat. Even if you believe in redemption, the community of science, so dependent on trust, cannot be so forgiving. Once lost, it is impossible to regain one's scientific reputation and the trust of peers.