Northampton Borough Council lent the money to Northampton Town FC but work on the Sixfields Stadium stalled and the club has since been taken over.
The audit committee of the Conservative-controlled council is carry out an internal investigation.
The committee is due to meet on Monday to set out the framework for its inquiry.
Assisted by the council's internal auditors Price Waterhouse Coopers, the committee will then report on its findings, with any recommendations, to full council.
Council leader Mary Markham said: "I am committed to pursuing the debt of £10.25m that we lent to the football club under its previous ownership to improve the stand and develop a hotel, but also to looking at how we managed this project and where we could improve so that nothing like this can happen again."
Councillors are set to meet to discuss an inquiry into their authority's £10.25m loan to a football club.