Bradford hospital chiefs knew they were facing a financial crisis within days of becoming a flagship Foundation Trust.

Bradford Teaching Hospitals NHS Foundation Trust was forced to axe 230 jobs and close wards at St Luke's Hospital in December after financial consultants revealed an £11.3 million black hole.

Consultants Alvarez and Marsal (A&M) had been appointed by foundation hospitals regulator Monitor to probe the Trust's finances.

A&M's hard-hitting report, revealed for the first time today by the Telegraph & Argus following an application under the new Freedom of Information Act, says the Trust was warned of the problems last April but failed to act effectively.

The final draft of the report, dated December 1, 2004, reveals that on April 8, only eight days after formally becoming a Foundation Trust -- chief executive David Jackson had warned of serious financial problems ahead.

Then on April 22 finance director Paul Earp sent a memo stating the Trust, which runs St Luke's Hospital and Bradford Royal Infirmary, could lose £10m in the worst case scenario.

In its report, A&M suggests the Trust was already £2.3m in the red at the end of the last financial year when it was given Foundation status, despite having been deemed financially sound by accountants PricewaterhouseCooper, which audited the Trust for its application.

Hospitals bidding for Foundation status have to show they are financially in the black.

A&M also predicted the Trust would need at least an extra £14.6m by March 2005, which in the worse case scenario could rise to £25.6m - representing a loss of £21.8m.

The report blamed the Trust's drastic financial collapse on a "barrage of changes" affecting the health service.

These included the introduction of "payment by results" arrangements where local Primary Care Trusts pay case by case for treatment and expensive new contracts for consultants.

But the hard-hitting report also points to operational weaknesses in the Trust which "crumbled" as the changes hit home.

Monitor sacked chairman John Ryan after questioning his leadership and supervision of the Trust's board and executive management in light of the report.

Mr Ryan has maintained he was "made a scapegoat" and was never given valid reasons for his removal. Paul Earp left the Trust in October.

In its own report into the affair, published today, regulator Monitor said: "The Trust board, Monitor, PricewaterhouseCooper and the external auditors were not aware of the deficit.

"Neither the finance director nor the chief executive informed the Trust Board, PwC or Monitor of the significant risks to, or inaccuracies in, the 2003/4 year end outlook."

A&M strongly criticised the Trust's management's response to early warnings from Mr Earp and said the board's failure to insist on follow-up financial reports from him until July, compounded the problem.

The Trust's financial reporting systems also came under fire and A&M said at that time there was no "reliable or properly reconciled" balance sheet for the Trust.

Today Mr Jackson insisted the Trust was unaware of the £2.3m deficit when it applied for Foundation status.

He said: "The April 8 memo talked about potential financial problems among a range of other things.

"When that was written we believed we had ended the year in financial balance. While there were some triggers we would have to deal with for the year ahead, we had no idea at that stage how big they may be or difficult to deal with.

Commenting on Mr Earp's memo, he said: "The £2m surplus was consistent with predictions we had made but Paul was saying there were a number of risks and if they all materialised we would have a £9m problem. Some of those materialised and some did not.

"We were approved as a Foundation Trust because we had successfully managed our finances for ten years; had a good record of cost control; had been assessed by Monitor with all the explanation and details required; and we had consistently had very good reports from external auditors.

"I have no reason to doubt the accuracy of the PwC report. At that time they looked at the risks we identified and made assumptions about those risks."

Mr Jackson said the Trust has always accepted the majority of the A&M's conclusions but not the analysis.

But Wharefdale councillor and member of the Trust's board of governors Matt Palmer, who also requested the A&M report under the Freedom of Information Act, said: "No-one told us as governors we were joining a potentially bankrupt foundation.

"It's a shocking and despicable indictment of the Trust's failure to deal with a problem it knew about well in advance.

"I am particularly disgusted at the Trust's failure to inform governors of the problem despite knowing about it well in advance. It's disgraceful the Trust recruited governors knowing they were running out of cash and facing bankruptcy.

"It's clear from the documents I have received under the Freedom of Information Act the Trust wanted to cover this up and make sure the public and local MPs never found out about the problem."