I really don't know who planned the idea of a free access child card without any way to tell it's being used. I foresee this problem from day one. Did they recently realized that this is happening on a regular basis?
Maaan, this is going to be bad. Over the next few months tens of thousands more will be cheating the system without even really "cheating" it (in the conventional evasion scenario). It's practically a loophole. This has gotta be fixed asap. Can each terminal be updated remotely?
If they can't do anything in the meantime, I think they should just charge adult fare if a child card is tapped. Tell the children to stop using the card and use main subway entrances with staff and don't tap on buses/streetcars till the solve the problem.
Surely the best solution is to have a TTC inspector at every single fare gate to check that people are using the proper card.
They should just install a multicolour LED light on every gate that will light up with Adult, Senior/Student and Child concession. It'll be easy to spot and have an officer there ready to write a ticket. The report has noted inspectors don't have the ability to arrest someone if they resist or simply walk away.
They might as well gate busy streetcar and bus terminals. Place a set of gates at the Spadina streetcar loop. Put a presto machine there and let people buy a ticket if they don't have one. Vancouver has them at entrances for those who didn't buy the correct zone or fare evaded into the system. This saves all the courts fee and fines TTC won't even get to keep.