Canadian Prime Minister Justin Trudeau said he "made a mistake" by joining in talks for giving a government contract to a charity that paid his family.
We Charity was tapped by his government to oversee a C$900m ($664m, £533m) youth volunteer programme in June.
It later emerged that We previously paid Mr Trudeau's relatives over C$280,000 to speak at events.
Mr Trudeau now faces his third ethics commission inquiry in office over the scandal.
"I made a mistake for not recusing myself from the discussions immediately, given my family's history," Mr Trudeau said Monday.
"I should not have been a part of the discussion."
Mr Trudeau has not been paid by the organisation himself, although he has spoken at We events for free.
The prime minister said he should have known his family had been paid, since they are frequently hired for professional speaking engagements.
In a statement on its website, the charity said it was the federal public service, and not Mr Trudeau or his cabinet, that asked it to oversee a national youth volunteer programme.
"We agreed to this challenge because we have 25 years of experience building youth service programs that are in 7,000 Canadian schools engaging students to support 3,000+ charities and causes," charity co-founders Craig and Marc Kielburger wrote.
They said the contract included funds to cover the administrative cost of the programme, but did not provide the charity with a "profit".
We confirmed that Mr Trudeau's mother and brother were paid for past speaking engagements. "We respect the public concern" over those fees, the charity said.
What is We Charity?
We Charity was founded 25 years ago by brothers Craig and Marc Kielburger in their parents' home in Thornhill, Ontario when Craig was 12 years old.
Formerly known as Free the Children, the charity focused on ending child exploitation and quickly drew international recognition.
Its co-founders became local celebrities, and have appeared on television programmes such as the Oprah Winfrey Show and 60 Minutes.
The charity's We Day motivational speaking conferences have become rites of passage for many Canadian youths, who are drawn to its message they can change the world and to its roster of celebrity speakers and performers. Guests have included basketball star Kareem Abdul-Jabbar and singer Demi Lovato.
This spring, a We Day event in the UK, at Wembley Arena in London, attracted 12,000 attendees. Speakers included actor Idris Elba and Mr Trudeau's wife, Sophie Grégoire-Trudeau.
What was We Charity hired to do?
Mr Trudeau is facing scrutiny over the decision to award We Charity the sole contract to run the government's new Canada Student Service Grant programme.
The C$900m (£525m; $600m) programme was designed to connect post-secondary students to paid volunteer opportunities that would help make up for the lack of summer jobs available as a result of Covid-19.
Mr Trudeau said We Charity was the "only" organisation capable of delivering on these goals. Most other government programmes aimed at Covid-19 recovery have been administered by the civil service.
What is the controversy?
The contract immediately raised eyebrows and accusations of favouritism, since it was outsourcing a massive federal aid programme to a private organisation with close ties to the prime minister.
On 2 July, We Charity announced it would withdraw from the contract because the programme had been "enmeshed in controversy from the moment of its announcement".
The federal ethics commissioner also announced he would look into the decision to award We Charity the contract.
It has since emerged that Mr Trudeau's mother and brother had been paid over C$280,000 together for speaking at various We events over the years.
Margaret Trudeau was paid $250,000 for speaking at 28 We events over four years, and the prime minister's brother Alexandre was paid $32,000 for speaking at eight events between 2017-2018.
The revelations that not only was the family closely tied to the organisation, but had been paid to speak, intensified the debate.
Mr Trudeau's finance minister Bill Morneau's two daughters also have connections to the organisation, according to media outlet Canadaland.
What does this mean for Trudeau?
This is Mr Trudeau's third ethics investigation since becoming prime minister.
His first concerned a Christmas vacation at the Aga Khan's home in the Bahamas in 2017, which included a free ride on a private helicopter.
The second investigation, over the prosecution of engineering company SNC Lavalin, nearly cost Mr Trudeau last autumn's election.
Former justice minister and attorney general Jody Wilson-Raybould accused Mr Trudeau and his staff of spending months trying to convince her that taking SNC-Lavalin to trial would cost Canadians jobs, and their party votes.
In both cases, the ethics commission found that Mr Trudeau had broken the rules.
Opposition parties say the latest We Charity scandal is more of the same behaviour.
The Conservative Party has asked the RCMP to open a criminal investigation into the We Charity debacle.
Conservative MPs are calling on both Mr Trudeau and Mr Morneau to testify before a parliamentary committee looking into the We contract.
This is bad news for Mr Trudeau and his Liberal Party, who form a minority government and need the support of other parties in order to avoid an election.
A recent survey by Angus Reid found that half of Canadians (50%) approved of the PM, while nearly half (48%) disapproved. It's a slight drop from a high of 55% in May during the height of Covid-19, but still significantly higher than his pre-coronavirus approval rating of 33% in February.
The polling company noted that the "intensity of positive versus negative appraisal is striking" - twice as many people strongly disapprove (34%) than strongly approve (16%).