The 24 boys - most of whom are mentally handicapped and aged 3-15 - were found on 10 June naked in a dark room without windows by US and Iraqi soldiers on a routine patrol. Many of the children were tied to their beds and too weak to stand once released.
In a nearby locked room, the soldiers discovered food and clothing which should have been used for the children. Three women, claiming to be the caretakers, and two men, the orphanage director and a guard, were on site when the soldiers arrived.
The case has infuriated parents of the children. "If we were living in a normal country, I would have sued these criminals," said the father of two of the boys. "But we are living in complete chaos," he added.
The father refused to be identified. He left his children in the orphanage after becoming a displaced person nearly two years ago.
"What can we do? They became a heavy burden on us. We decided to send them there and we still can't take them back because of our harsh living conditions," said the father.
Ahmed Nasser Abdullah, 44, father of a mentally handicapped boy in another Baghdad orphanage, shared the same sentiments. "I'm totally shocked," he said.
Abdullah, a day labourer, left his son at the orphanage about three years ago as he could not afford his son's treatment, but now he has decided to get him back.
"Living in severe hardship is better than leaving him in those uncaring hands. Now I understand why they insisted I made an appointment before visiting my son. They make sure the kids are in good shape before a visit," Abdullah added.
"Two members of staff have been arrested," said Hamid al-Zaidi, the Labour and Social Affairs Ministry's inspector-general. Arrest warrants were also issued for three employees of the orphanage who have gone into hiding and remain at large, according to al-Zaidi.
Two probes were under way - one ordered by Prime Minister Nouri al-Maliki and one by the Labour Ministry, a government statement said last week.
"The incompetent employees will be severely punished and even imprisoned," al-Zaidi said.
He acknowledged that some caretakers had been negligent, but said the orphanage had been doing its best to provide care for the children under difficult circumstances. He said the caretakers had to take off the orphans' clothes to cool them down as the place had no electricity and thus no cooling systems.
"The handicapped children were abandoned by their families and we are trying to save them from death, but the whole of Iraq is undergoing difficult circumstances," he said.
Al-Zaidi said the manager of the boys' home had requested generators and pay rises but these had been rejected.
The Ministry of Labour and Social Affairs declined to say how many orphans were in its facilities.
On 22 June the UN Children's Fund (UNICEF) urged the Iraqi government to address the plight of orphans and vulnerable children in Iraq.
UNICEF also called for a transparent monitoring system for the management of such institutions, and measures to improve staff skills and boost community-based childcare alternatives.
"The ongoing conflict and displacement are now putting the welfare of all children at risk, particularly orphans. Families struggling to feed and educate their own children are increasingly unable to take on others," the UNICEF statement said.