A report into the financial health of a Warwickshire hospital has raised "serious concerns" that the trust does not appear to know how to tackle its £8.5 million deficit.
George Eliot Hospital, in Nuneaton, Warwickshire, had not put in place a "robust" financial recovery plan or even any medium term contingencies in place to tackle its financial difficulties.
The Audit Commission report, published yesterday, revealed hospital bosses had drawn up plans to achieve financial balance but these were rejected by West Midlands South Strategic Health Authority for being "insufficiently developed" and could a ffect the hospital's performance.
It also failed to explain how the trust's cumulative debts in excess of £9 million, built up between 2004 and 2006, would be recouped.
The proposed recovery plan also contained "over-optimistic" assumptions on how much additional income could be negotiated.
A set of temporary measures have now been introduced to help the trust address its £8.5 million deficit, but it still has no medium or long term cash flow plans.
Included in their stop-gap finance plan is the proposed closure of the hospital's medical museum, which has running costs of £31,000 a year and is one of seven owned by the NHS.
Gus Miah, director of appointed auditor PricewaterhouseCoopers and author of the report, said: "Despite the challenges facing the trust's new board it remains committed to restoring financial balance.
"However, the trust's financial position has deteriorated to such an extent that it cannot be managed simply through local measures.
"The trust, working in conjunction with its key stakeholders across the healthcare community, needs to determine what level of services are sustainable long term and to develop a service strategy around this that will achieve its financial duties."
The report's recommendations state George Eliot Hospital NHS Trust should develop medium and long term strategies alongside an acute services review being under-taken within the local health economy.
It must also develop a longer term financial plan, which has SHA approval, and seek confirmation from the authority that its short term cash needs will be met in 2006/07.
Hospital bosses have also been asked to respond to the auditor's concerns over the trust's corporate governance arrangements and to conduct a full review of its finance department's capacity and capabilities.