The Google search: David Shepardson Prison Visitation Rules Criticized gets 46 hits, including TAKING A STEP BACK: THE UNITED STATES SUPREME COURT’S RULING IN Overton V Bazzetta. LOYOLA OF LOS ANGELES LAW REVIEW Vol. 37:1831. Of this long review's 135 references, no. 2 is a Human Rights Watch report that claims to refer to the incident: NOWHERE TO HIDE: RETALIATION AGAINST WOMEN INCARCERATED IN MICHIGAN STATE PRISONS 1998)
This Loyola of Los Angeles Law Review may be the very article you saw – on page 10 it says: "In fact, what prompted "a wholesale review of [the MDOC’s] visitation policies" was the sexual assault of a 3-year old in 1994." But its reference #2 says not a word about the incident - unless it is ONLY in the first part the reference: "2. David Shepardson, Prison Visitation Rules Criticized; Rehabilitation Suffers Under State’s Security Concerns, Critics Say, DETROIT NEWS, June 17, 2001, at 1C". That news article would have to be ordered via Interlibrary Loan. Search Open Worldcat "detroit news" to see what libraries closest to you have it.

A Google search: "three year old" "saginaw correctional" gets 9 hits, including a UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN case "...Warden Luella Burke, of the Saginaw Correctional Facility, .... found to have molested a three year old girl who had been brought to the facility by her ..."

But searching: year old , in the HTML version (use CTRL-F), I find: "Another articulated concern in passing the visitation restrictions was the safety and security of minor children. In 1994, an inmate at the MDOC Muskegon facility was found to have molested a three year old girl who had been brought to the facility by her mother (a friend of the inmate) for a prison visit."

The Google search,: "muskegon correctional" "three year old" gets 8 hits, including an August 10, 1995 press release, which says: "The emergency rules, set to expire on August 29, were requested in part due to a sexual assault of a three-year-old girl at a Muskegon Correctional Facility last year, and an effort to stem the flow of illegal drugs and potential weapons into the state's prisons"