The public spending watchdog faces an overhaul to its own system of financial controls after its most senior official stepped down yesterday after criticism of his lavish expenses.

Sir John Bourn announced that he would retire in January. He linked his decision to legal changes that would conflict with his separate role heading the professional body for auditors. But it came after rows over his travel and dining bills and acceptance of corporate hospitality, which highlighted loopholes in spending controls on the public sector’s auditor-in-chief.

Details of Sir John’s first-class air travel across the world with his wife, stays in grand hotels and meals at some of London’s finest restaurants sat uncomfortably with his job exposing inefficient use of taxpayers’ money. He made no reference to the controversy in a long statement.

Sir John, 73, had held the ancient post of Comptroller and Auditor-General for 19 years and, as a Crown appointment, could have remained for an indefinite period.

Under rules intended to safeguard his independence from the Government, whose departments, agencies and other public bodies he audits, his salary of £159,058 is paid from the Government’s main bank account, but his expenses are paid separately from the National Audit Office budget and not subject to approval from its staff.

Tim Burr, Sir John’s deputy, is to take over his role from January but only until reforms to overhaul the internal running of the National Audit Office are approved by MPs.

Jack Straw, the Justice Secretary, told MPs yesterday that he would leave space for such reforms in his Constitutional Reform Bill in the next parliamentary session, pending recommendations from a group of MPs. They will consider a separate NAO advisory board, more non-executive directors and tighter internal controls.

Sir John has been under pressure since April when the National Audit Office was forced to reveal details of his expenses, including £365,000 on travel and accommodation plus almost £27,000 at restaurants over three years. His 45 overseas trips included assistance to emerging democracies, visits to development projects and “fact-finding visits”.

When reports of his expenses surfaced, MPs convened a meeting of the Public Accounts Commission, an obscure body that examines the NAO budget. These MPs concluded in June that there was “no evidence of impropriety” but called for a more transparent system for checking his expenses. A month later they unveiled controls requiring him to travel business class instead of first class and to seek approval before taking his wife with him.

This month MPs announced a further and wider review of how the NAO is run. This followed calls for Sir John to quit after details emerged of how he had accepted hospitality from trade bodies and companies, including BAE Systems, the defence company whose contracts he had investigated.

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