Auditor General Jack Wagner said the Legislature needs to act on his proposal because it is not possible for the university trustees to be objective in restructuring the organization.
Wagner promised to release a more detailed report in about two months that will elaborate on how the board can be changed to make its decisions more transparent to the public.
Wagner said the university president, currently Rodney Erickson, should not be a member of the board at all, saying the current governing structure gave the president too much power, also serving as board secretary and on standing committees.
"The president cannot be an employee and an equal to the board, and in fact that's the structure of Penn State University today," Wagner said at a Capitol news conference.
He also said the governor, who is now Tom Corbett, should only serve as a non-voting member to address concerns about a potential conflict of interest.
Corbett is a Republican, while Wagner is among the state's highest-ranking elected Democrats.
Corbett spokesman Kevin Harley was dismissive of the idea.
"That sounds like a recommendation from someone who lost a race for governor," Harley said.
Penn State spokesman Dave La Torre said school officials had just received Wagner's recommendations so it was too soon to comment on them.
Wagner also said the state's open records law should be amended so that it more fully covers Penn State and three other so-called state-related universities: Temple, Lincoln and Pitt. And he said the Penn State board should not be able to meet without the participation of at least half of its 32 trustees—the current minimum is 13, so a vote by seven can make policy.
Penn State has received hundreds of millions of dollars in state support in recent years, and Wagner said the total is more than $10 billion since the university was founded in the 19th century.