You may have noticed by now that the Shinsengumi now comprises mainly of Kondou's men. Needless to say, they were the souls of the Shinsengumi from the start to the end - 'cos they are the more powerful. ("This is a world where the strong survive and the weak perish...") Anyway, Serizawa Kamo wasn't quite an impressive piece of goods. He was famous for wielding an iron fan as a weapon and frequented brothels, killed people at whims, got drunk and got all the more impertinent, while using his power as "Captain of the Shinsengumi" to cover up his wrongs all the time. This caused the birth of the nickname, Mibu Wolf: the troupe first gathered at a village called Mibu, so Roshis of Mibu -> Mibu-ro but this became Wolves of Mibu -> Mibu-ro. The troupe was despised throughout Kyoto. It was the last straw for Kondou and Hijikata when Serizawa summoned a prostitue to the hostels of the Shinsengumi - they were men of high morale and held fast to the codes of samurais.
On the other hand, Niimi wasn't much better off. As the troupe was travelling to Kyoto, a fire broke out at the inn that they were staying, and Kondou had taken all the blame for negligence. He was further mocked by Niimi and Serizawa. A few weeks later, however, Hijikata and the others uncovered the truth: Niimi and Serizawa were demanding some discount (or some other luxurious services) from a certain shop-tender, who declined to obey them as their demands were just too ridiculou. Angered, the two of them fired a cannon - which travelled with the troupe and was being kept in the inn's store - at the shop. They blundered somewhere, however, and the inn was plundered in fire. Hijikata managed to uncover enough evidence to convict Niimi only, however, and he ruled Niimi to commit seppuku. After which the hostility between Serizawa and Kondou became more intense. Finally, on 18/9/1863, Serizawa and other corrupted members were assasinated by a special killer group, comprising of Inoue, Yamanami, Toudou, Harada and Okita. (Refer to RK chapter on Udou Jine - he was supposed to be one of the corrupted members, but of course he doesn't really exist. His sword skills do, though.)
Well, members came and went, usually by decapitations and commiting seppuku. After the Serizawa affair, Kondou and Hijikata were determined to keep up the qualities of their members, so not only was the "entry exams" made more difficult (more notes on this later), any members found guilty of doing something which stain the "way of samurais" was decapitated, assasinated or ordered to commit suicide. (Refer to Saitou's quote when fighting Kenshin in Kamiya Dojo: "The first rule of Shinsengumi - never do anything that stain the way of samurais!")
I got this from a historical novel: Roshis who wish to join the Shinsengumi would have to fight other candidates in the same "intake", fighting the matches using shinais (bamboo swords). The stronger ones would usually be required to fight some of the more accomplished Shinsengumi members, usually Saitou (who joined the Shinsengumi later), Nagakura or Toudou. The referee for these matches would usually be Okita. Actual selections of new members were done by Hijikata and Yamanami.