Not so much that it is 'so far gone' as it simply never was quite there.
Essentially, a student who is under fifteen goes through the colored belt curriculum at his or her school and is at a point where, were they an adult, they would be testing for first dan, is tested in the member school. Presumably the test is the same test that adults get, but scaled for a kid.
Assuming that the child passes, the paperwork goes to the Kukkiwon. They issue a certificate that reads, "First Poom."
At this point, the instructor ought to put a poom belt and a poom dobok on the kid. A poom belt is half red and half black, and a poom dobok is essentially the same as your TKD black belt dobok with the black collar, but the collar is half red/half black, just like the belt. This is the first point of break down: most of the time, the instructor puts a black belt on the student.
If the child is young enough that they will be eligible for second dan before they are fifteen, then they are tested for second poom and receive a certificate that reads "Second Poom." The same can be done for third poom, assuming that the student is young enough.
The second area of breakdown is that once the child is fifteen, the instructor can file paperwork and all of poom ranks convert to dan ranks, no test required. Thus a third poom is now third dan at the age of fifteen.
It should be noted that this is not automated. An eight year old first poom who quits after getting his belt and never comes back is still first poom, even if he is now thirty.
As I said, fixing it would be fairly easy. Making the poom ranks intermediate ranks (between kyu and dan), rather than unfinalized dan ranks that convert upon the child's fifteenth birthday would pretty much solve it.
And even if the organization will not implement it, a creative school owner certainly could.
Daniel