A city-run nonprofit that doles out millions of dollars to community groups with little oversight has hired a law firm to help restore its tax-exempt status, a step its chairman said was the latest in “righting the ship.”

The Philadelphia Activities Fund, which has a $2.5 million annual budget, had for years allowed district City Council members to unilaterally give away hundreds of thousands of dollars to groups and people of their choosing.

This week, the fund hired Chesire Law Group, a Germantown-based firm, with the goal of “getting the board professionalized,” according to Councilman Brian O’Neill, the fund’s chairman.

First step: Getting the fund’s federal charity status back.

The Inquirer reported last month that the IRS revoked the fund’s federal tax-exempt status nearly a decade ago for failure to file tax returns — a fact board members didn’t realize until being told by a reporter. Not having a federal tax exemption was essentially a violation of the fund’s bylaws.

Hiring the law firm is the latest step in a series of reforms since the Inquirer story. “It’s a good thing to get started on righting the ship,” O’Neill said.

What the law firm will do

A small, female-owned firm, Cheshire Law Group specializes in advising nonprofits. Its hiring followed the recommendation of Parks and Recreation Commissioner Kathryn Ott Lovell, who serves as the fund’s vice president but is a nonvoting member.

O’Neill said a contract was signed Tuesday. The firm will be paid up to $340 an hour. The contract is capped at $30,000, since it was not publicly bid.

O’Neill said he wasn’t sure how long the lawyers would take to do the work. But he doesn’t expect them to reach the cap. He said he hopes to hire an auditor once the nonprofit lawyers have straightened out some of the legal and tax issues.

Bylaws revealed

The fund’s board of directors consists of three Council members — O’Neill, Cindy Bass, and Jannie L. Blackwell — plus a Council staffer and three others with ties to the Parks and Recreation Department, including its commissioner, Kathryn Ott Lovell. Most of the members have previously served or run nonprofits.

It was only in the last year that the fund’s board began regularly meeting and started getting up to speed on the fund’s operations.

“We didn’t even have the bylaws until last meeting,” O’Neill said.

He said the board will review the bylaws to learn what it should be doing or what should be amended. “Some of it is pretty straightforward that hasn’t been followed but should be easy to fix,” he said.

Will closed-door meetings end?

Currently, the board meets behind closed doors, and decisions are left to district Council members’ discretion. Due to the opaque nature of the fund’s operations, nonprofit experts have suggested that the Activities Fund open its meetings to the public.

Beth Gazley, a professor and nonprofit expert at the Paul H. O’Neill School of Public and Environmental Affairs at Indiana University, said that cities sometimes create nonprofits to make grant-making easier, but that transparency can be lost.

“If you’re city-funded … you should have open meetings," she said. "There’s nothing wrong with that.”

O’Neill previously said open meetings wouldn’t be a good idea because board members wouldn’t be as candid. But this week he said he’s been giving it thought and looking into what other nonprofits do.

He said he one model that might work is to keep personnel and legal matters in a closed executive session — as most public bodies do — but otherwise hold public meetings for decisions.

Both Bass and Blackwell said they would agree to public meetings.

“I don’t mind having meetings open to the public about the Activities Fund,” Blackwell said.

Correction: A previous version of this story misspelled the name of the law firm hired to help the Activities Fund. It also incorrectly stated the firm's rate.