The Government also plans to improve the training of non-executive directors - often appointed with little or no experience of running health services - before they take up their posts in regional health authorities.
Sir Duncan Nichol, the NHS chief executive, accepted yesterday that scandals in the Wessex and the West Midlands regional health authorities were allowed to develop unchecked, and that blurred lines of responsibility between senior managers and members were partly to blame.
Under fierce questioning from MPs on the cross-party Commons Public Accounts Committee, Sir Duncan said that West Midlands regional health authority had repeatedly breached Department of Health protocols on the award and monitoring of contracts.
He went on: 'We must go further in what we do to ensure that the non-executive directors do the job we expect them to do.'
Sir Duncan also made clear he wanted changes in the system for auditing health authorities that currently often place most emphasis on value-for-money scrutiny. He will ask auditors to carry out more 'probity audits', looking more at the degree of diligence and honesty in decision-making.
The committee postponed plans to question senior officers of the Wessex regional health authority yesterday until it had received further audit reports from Sir John Bourn, Comptroller and Auditor-General. Instead it focused on the pounds 4m losses sustained over the last three years by the West Midlands Regional Health Authority over a secret contract intended to improve cost-effectiveness of its supplies arm.
Sir James Ackers, who resigned his chairmanship of the authority last month, told MPs he had for months been unaware of staff unease surrounding a contract negotiated by Chris Watney, the authority's former director of regionally managed supplies. The contract was made in 1990 with a consultancy firm, United Research Group (URG), whose members now trade under the name of Gemini.
URG told Mr Watney it could help him save pounds 50m over five years for a health authority investment of pounds 1m. Instead, the association between the two bodies led to losses totalling pounds 4m. Questionable costs included consultants' expenses of pounds 350,000, according to Sir John's inquiry. This went on entertainment, leased houses in London and commuting by air.
Some money was squandered on 'team-building dinners' held purportedly to boost the morale of the consultants themselves, Stuart Fletcher, the new West Midlands general manager, said.
None of the staff directly involved in the losses had been disciplined, but instead had been allowed to resign or take early retirement, sometimes with substantial pay-offs, MPs were told.
Sir Duncan agreed with Robert Sheldon, committee chairman, that standards of conduct had fallen to 'wholly unacceptable' levels. 'There is no excuse for health authorities breaching their standing orders governing (contract) compliance,' he said.