Last year, the Scarborough and North East Yorkshire Healthcare NHS Trust overspent by £7m.

Accountants Price Waterhouse Coopers who were hired to advise the trust, have recommended several options to balance the books by March 2008.

One option is to axe 99 jobs and close two wards at Scarborough Hospital.

The report also suggests cuts in the number of midwives and agency nurses and reducing the hours worked by consultants and junior doctors.

"We have a very short time to produce a robust plan to ensure the trust returns to financial balance"
Iain McInnes, interim Chief Executive

The review was ordered after the Audit Commission concluded that inadequate leadership and ineffective management were the cause of one of the worst deficits in the NHS nationally.

In July, chief executive Alison Guy and finance director Bernard Flynn were both told not to go into work as the review was launched.

NHS bosses have refused to confirm or deny whether Mrs Guy and Mr Flynn have been officially suspended, simply saying they had been told to stay away from all the hospital trust's buildings.

Meanwhile, the trust said it had not yet decided which option to adopt for its "financial turnaround plan".

It is due to consider the review report at a board meeting on 26 September.

Interim chief executive Iain McInnes, who took over on 4 September, said: "We have a very short time to produce a robust plan to ensure the trust returns to financial balance in the shortest possible time scale."

'Significant challenge'

He said some measures already taken had saved money, but added: "There will have to be a further range of schemes, which will almost certainly include some service reconfigurations.

In a newsletter to staff he added: "The trust faces a significant financial challenge but it is clear that many of you wish to support the trust management and me in resolving the financial problems we have.

"I am confident that together we can make the necessary changes.

"Local people in Scarborough and North East Yorkshire deserve hospital services that are clinically safe and provide good value for money.

"If patient choice is to be a reality we have to be valued and trusted by our local communities to deliver first class healthcare."