Absolutely, positively you must notify the parents. If something would happen to one of the children, your group could be held negligent for knowing of the hazard and not relaying the information.
Ask them how they would feel if it was THEIR child!
Please help! I am only one of 5 PTO officers who thinks we need to inform the parents of a recent recall on a particular prize item we gave out at our Fun Fair last year. There is a potential for lead poisoning and quite frankly, I think the parents need to know. The reasoning I am told is that "We only gave out 12 and we don't want to cause a hysteria." My thought is if we don't let them know and a small child gets sick, there is going to be MORE of a hysteria. Please let me know what you think!