That's a lesson hard learned but you should try to stay away from friends, family, neighbors, and so on it generally doesn't end well. Unless you truly need the income this child provides I would give notice and advertise for the spot. It is impossible to guarantee that children will never get hurt even if you are right there cause kids lash out especially if they don't have verbal skills yet. They push, hit, bite, kick, scratch, pinch, throw toys at, whatever and there's no way you can always intervene before it happens. I think this parent is blowing things out if proportion and perhaps she is trying to upset you so that you will end the arrangement. Maybe it isn't working out so well for them and they think thus is the best way to go about it. Maybe they are the type of parents who try to keep their child in a bubble. Perhaps have an honest conversation with her and let her know that while you enjoy looking after her child you think that this might not be the best situation for your friendship and think she should look for care somewhere else but that you could still have play dates with the children ( space permitting). Good luck