The authority has been issued notice under section 15 (3) of the Local Government Act 1982 - widely dubbed the 'Magill section' following the Westminster scandal.
Auditor John Thomas can now publish a public interest report rather than wait until the end of a local authority's audit if he believes there is sufficient public concern.
Implicit in the notice is that Welwyn Hatfield must make available all documentation relating to the case, which saw the High Court award damages to shopping centre developer Slough Estates because the council lied to the firm about the relaxation of a tenant mix agreement with a rival complex.
While it is understood that Mr Thomas will await possible further legal developments before taking any substantive action, Welwyn Hatfield's current chief executive David Riddle said: 'Myself and every officer in the council will fully co-operate with the investigation. We are delighted that the district auditor is carrying out this investigation and want to do all we can to help him.'
Welwyn Hatfield has lodged an appeal against the High Court judgment, but has been hit with a counter-appeal by Slough Estates which, if successful, will push the damages bill beyond the £50m mark.
While the counter-appeal is largely a technical submission, it raises questions relating to the calculation of damages.
Slough Estates chairman Sir Nigel Mobbs told LGC his firm would not have pressed the issue of the damages calculation had Welwyn Hatfield not appealed.
He said the 'whole question of the quantum of damages' was up for debate but insisted that the counter-appeal was 'not intended as an indication of hostility'.
Welwyn Hatfield has until the end of the month to pay a first instalment of £10m, which will be partially funded from capital receipts. Slough Estates has agreed to defer an interest payment of £3m for the time being.