Not necessarily. Based on the age of the children the counselor may not be required to report it. Even if it is reported this is not a guarantee that any child will be removed. If the parents are taking all the necessary steps to prevent this from happing again then the state will simply keep a eye on the actions.
Regardless the children do need a counselor to help them deal with this issue. More so the victim and the child who done the touching. Since they are young this is more a issue of children making bad choices in play time then abuse. While this could be a sign of trouble the fact is if handled correctly this should not be a major issue.
The first step is to sit down and talk with the child who did the touching. Let him or her know why this is not OK and how it will be handled in the future. Let the child know that touching in private areas is not to be done regardless. The children will need to be supervised well......no alone time without a adult in the room. Now may be the time to start making sure they know boundary's such as not allowing them to see each other naked if they have in the past as well as limiting each time in the others bedroom without a adult. The good news is if this was childhood curiosity with gentle steps both children will learn this is not acceptable and move on without being scared.
You must keep in mind the ages of the children........many years ago this would have been a simple matter of each child getting a good talking to and a close eye kept on the situation. In todays society we are always ready to suspect the worst in children. This is the same action as years ago. We are just seeing it happen more often due to society's views on sex. Kids are bombarded with this on a daily basis, from TV, music, and books as well as other peoples actions.
You will want to be diligent in making sure they are not viewing anything more then necessary in this situation. Screen TV, Music and magazines as well as talk to older children and family to make sure they know to watch what they say and do in front of the children.
At this point, the more you work toward making sure it doesn't happen again........without scaring the beegeesies out of the kids the quicker the behavior will go away. As far as all the children being removed the answer is no. Unless all the children are in danger they would not be removed.