There has been a freeze on recruitment at the hospital

South Tees Hospitals NHS Trust reported an overspend of �9m for 2004/5, has to repay �12m from other NHS bodies and forecasts a �10m deficit in 2005/6.

District Auditor Lynne Snowball issued a public interest report into its poor financial position on Tuesday.

The trust says it has already made savings, but acknowledges the need to work hard to improve its finances.

The trust runs James Cook University Hospital in Middlesbrough, the Friarage Hospital in Northallerton and Guisborough Maternity Unit.

Ms Snowball raised concerns about the financial position in reports to the trust board in November 2003 and 2004.

She said the trust had been slow to respond and its financial position deteriorated during 2004/05.

Additional improvements

She said: "It is encouraging that the trust has now agreed a plan of recovery action on a significant scale, with planned financial improvements amounting to �44m within the next three years.

"However, this is not enough to meet the trust's legal financial responsibilities.

"It needs to make additional financial improvements of a further �22m over the next three years to do this."

Trust chief executive Simon Pleydell said it had reduced its forecast deficit after taking action last year and had made savings.

He said the outstanding issue was how the board would tackle the �31m it had borrowed in recent years to balance its books.

He said: "Clearly that is now a matter of priority for us to address with our healthcare partners - the strategic health authority and local primary care trusts."