As a daycare provider I thank you for being so nice and sympathetic towards a mistake. However, also as a provider this is a really BIG mistake. Maybe I've just been in the business so long that I've become a complete germaphobe. But my dog is in a kennel when I am not directly supervising him. He has never had great control of his functions. He can be out for just a little bit without an accident and I take him outside before I let him play in the house. On the very rare occasion potty has been done on the floor I have been right there and gotten it. There's no reason or excuse for a child to be getting into that.
We do have cats and cat boxes. My boxes are not hidden from the kids. So we have to watch them all very closely to keep them from getting into them when they are at that age where they would or could. But isn't it our job to supervise them constantly? I can't have my eyes on all 4 of my daycare children and my grandson and daughter and the cooking, cleaning, and phone. But by golly, it's something I take extremely serious and I set up protocols and rituals with the kids to keep everyone in line as much as humanly is possible.
I really don't think this dog should be made to live outside. They need and crave being around people. She should get a kennel so that the kids and the dog are near each other and used to each other even while being protected from each other. It works well for us.