Minister for Foreign Affairs Eamon Gilmore has suspended all Irish aid payments channelled through the Ugandan government after allegations that €4m has been misappropriated.
Mr Gilmore said €16m of Irish aid has been put on hold.
The move comes after a draft report by Ugandan's Auditor General found that €12m in aid had been transferred to unauthorised accounts in the office of the Ugandan Prime Minister.
The money had come from Ireland, Norway, Sweden and Denmark.
The draft report covers the period from July 2011 to July 2012.
Irish officials, including two auditors, were sent to Kampala this morning to examine the draft report and will report back to the Tánaiste on whether the money can be retrieved.
Mr Gilmore said he had asked the Irish ambassador in Uganda to convey the message that while the Government is proud of its aid programme there, it will not tolerate any misappropriation or misuse of Irish money.
Responding to questions about whether Ireland should stop giving aid directly to the governments of the receiving countries, as had been previously called for by some NGOs, Mr Gilmore said he took comfort from the fact that the issue was identified by the Attorney General in Uganda following an investigation of the prime minister’s office.
He said the Government's aid programme has been working to support offices such as independent auditors-general in countries where they provide aid.
Uganda is one of the biggest recipients of Irish aid and was due to receive €32m from the Government this year - €17m of this is channelled through the Ugandan government, while another €15m is given to NGOs.
This money is not affected by today's decision.
GOAL said it fully supports Mr Gilmore for suspending direct aid to the Ugandan government.
GOAL's Acting Chief Operations Officer Jonathan Edgar said: "GOAL has been advocating for many years for the strict policing of aid, to ensure that it gets to those people most in need."
Mr Edgar said total transparency and accountability in the handling and distribution of overseas aid is of vital importance in the fight against abject poverty and deprivation in the developing world.