I think what a lot of you are (deliberately) failing to realise is that the OP could do bugger all, once the phone was 'sneaked' out the house.
It's okay you all having digs at OP, asking how the 7 year old got the phone out of the house but that is a separate issue.
The OP is asking whether childcare are being unreasonable by not confiscating said phone and, yes, they are. They should have taken phone off child, informed parent, and carried on that route.
OP, it sounds like they were looking for an excuse, especially as said childcare would not have known it was sim free with no access to Internet. So, for a they knew, she could be accessing anything.
And ignore all the 'perfect' parents on here. They really love to elevate themselves by putting others' down.
Hope you get it sorted. And good for putting checks in place to make sure the situation doesn't repeat. I imagine you have your hands full with four children.