Kayihura was quoted by state-owned New Vision on Thursday saying that he had received a call on Wednesday morning about an orphanage in connection with the scam and he had instructed the police to investigate the orphanage.
The police are also investigating another orphanage on Gayaza Road which allegedly collects children, especially girls, who are sexually abused.
Kayihura was speaking at the first regional conference on anti- human trafficking in Eastern Africa in Kampala on Wednesday.
Human trafficking is a lucrative business in Uganda, the Great Lakes region and elsewhere, causing concerns to the governments and security agencies.
The director of operations of the United Nations Office on Drugs and Crime in Vienna Jeffrey Avina said that human trafficking fetches 32 billion U.S. dollars a year. He added that 2.5 million people are trafficked in 127 countries annually.
"Uganda is considered a source, transit route as well as a destination for children being trafficked from the Great Lakes countries," state minister for internal affairs Matia Kasaija said while opening the conference.
"While there is limited statistics on human trafficking in Uganda, the manifestation of the problem has been observed and reported to the authorities, thus causing great concern to the government and the people of Uganda," Kasaija said.
Representatives from 11 member states of the Eastern African Police Chiefs Cooperation Organization namely Uganda, Kenya, Tanzania, Rwanda, Sudan, Somalia, the Seychelles, Burundi, Djibouti, Eritrea and Ethiopia are attending the conference that ends on Friday.
The minister noted that human trafficking in Africa affects mainly women and children who are often subjected to prostitution and forced labor. He cited Karamoja as one area where girls are exploited and sexually abused.
He attributed the crime to poverty, gender inequality, lack of birth registers, exploitative sex, cheap labor and armed conflicts.
He said the ministry had been alerted to the increasing number of passport applications for fostered children, mostly by foreigners on short-term visits.
"Such foster orders issued to foreigners on temporary immigration facilities undermine the capacity of the law enforcement to monitor the welfare of the fostered children living abroad," he said.
He also said about 30,000 girls and boys had been abducted and recruited into rebel forces in Uganda in the last 20 years. Some of the abducted children ended up in Sudan, Kenya, Rwanda, Tanzania, the Democratic Republic of Congo, the Middle East, Europe and America, he said.
To address the problem of children trafficking, the minister urged the respective governments to tighten adoption procedures, amend children's laws and design common guidelines on adoption of children in the region.
As a way of addressing the problem, the minister added that every Ugandan would have a national ID by the end of next financial year.
The conference funded by Norway and Sweden is meant to raise awareness and develop a regional action plan to combat human trafficking.