Just days after being criticized by the county for failing to control its swelling budget deficit, L.A. Unified school leaders were told by their own staff Thursday to manage the district's money better.

If the Los Angeles Unified School District wants to reduce its current $550 million budget deficit, it needs to streamline operations and insist on accountability, LAUSD Inspector General Don Mullinax said in an annual report on management challenges.

"We've been noticing some overlap and duplication in the district," Mullinax told the LAUSD Audit, Business and Technology committee Thursday.

For example, the district receives $4 billion a year in state and federal funds, but doesn't have a centralized way to manage that money. The LAUSD also has 1,041 board rules and guidelines on the books, many of which are outdated, inaccurate and contradict one another, he said.

Since last year's report, Mullinax said the district has made gains by hiring a chief information officer, improving teacher training, upgrading its payroll system and hiring an insurance risk manager.

School board members did not appear to be particularly alarmed by Mullinax's report.

Board member Marlene Canter said she wished the report would have focused more on the positive strides the district has made. "It sometimes feels that we're focused, we're focused, we're focused, and it's still a challenge," she said.

Jon Lauritzen, also on the board, said he was well aware of most of the problems and that the district is already working on many of them.

"A good bit of it is already in place or being worked on," he said. "This isn't really bad news. It's just ongoing progress."

But Mullinax said the LAUSD must still strengthen its ethics program, improve its ability to monitor contracts and make sure schools are properly managing campus funds.

"If not effectively addressed, the following challenges could expose district programs and operations to unnecessary risk, excessive costs and chronic performance shortfalls," the report said.

The Inspector General's Office has found cases where campus spending accounts are not reconciled for years or lack sufficient records to be audited.

If the district doesn't increase accountability, it "will continue to breed an environment susceptible to waste, fraud and abuse," the report said.