The board has been granted interim accreditation until May 11 to give it time to sort out the problem.
The Medical Council inspection report shows the main issue is Dunedin Hospital, where house officers report being overworked.
Southland Hospital earned praise for aspects of its training, but accreditation is handled on a DHB basis.
House officer is the term for doctors in their first two years after medical school.
The inspection report says an ''apparent lack of engagement by senior management and some senior staff'' had hampered efforts to revise and improve the programme.
The board has 50 house officers, referred to as interns in the report.
''Handover and informed consent are key components of patient safety and systems and guidance for interns within the Southern DHB needs to be greatly improved to ensure the standards addressing these are met.
''There are a significant number of required actions that the Southern DHB need to take to address areas requiring improvement.''
One shortcoming was that no-one held overall responsibility for house officer training.
''In our interview with the acting chief medical officer he advised that he was not undertaking this role, nor had he delegated this role.
''This lack of accountability greatly troubled the accreditation team because without leadership of, and commitment to, intern training at the highest level of Southern DHB, the expected teaching experience is highly likely to be compromised.''
The board has since delegated responsibility for the training programme.
It was one of 19 required actions, four of which had to be complied with straight away.
Other requirements involve improving handover procedures, orientation, informed consent protocol, supervision, feedback and developing a strategic plan for the training programme.
''Of particular concern is that we have no evidence that [house officer training] is seen as a priority at a senior leadership or governance level.
''Council requires evidence regarding the strategic commitment of Southern DHB to the training and pre-vocational education of interns.''
The report notes a ''workload disparity'' for house officers between Dunedin and Southland hospitals.
''The accreditation team have been informed that at Dunedin Hospital the interns have such a high patient load that administrative duties markedly decrease the time available for them to gain hands-on clinical experience, except in the evenings, at nights or on the weekends.''
Senior doctors' union executive director Ian Powell said he was ''stunned'', and the situation was much more serious than the accreditation issues in parts of the board's registrar training.
House officer training was ''more basic'', and involved a bigger group of doctors.
A ''devastating blow'' for credibility, it must serve as a ''wake-up call'' for the commissioner team at the board, Mr Powell said.
''Overall, there is a real problem in the leadership of the DHB at the highest levels in terms of culture and the failure to have a culture of engagement,'' Mr Powell said.
Medical Council chairman Andrew Connolly said the board's hospitals were safe for house officer training on an interim basis, and the inspection team found no evidence of patient harm.
''We would have concerns that [patient safety] could be compromised if these problems aren't addressed.''
As the hospital's ''newest doctors'', house officers needed strong support structures.
Dunedin Hospital could learn from practices in place at Southland Hospital, he suggested.
In a statement, acting chief medical officer Richard Bunton said the board was implementing the required actions and looked forward to receiving its new intake of house officers.
''It is important to stress that the accreditation is about the way we train our junior doctors and is not about the quality of our clinical work or clinical safety.''
The lack of a permanent CMO was part of the problem.
''At the time of the accreditation, the responsibility for the pre-vocational education and training had not been formally delegated due to the departure of chief medical officer.''
He now handled the responsibilities as acting CMO. The board is looking for a new CMO.
