The Financial Reporting Council (FRC) has fined accountancy giant Ernst and Young £750,000 and told it to pay costs of £425,000.
Auditor Alan Flitcroft, who worked for the accountants, and was responsible for signing off the audit, was fined £50,000. It is understood the firm will pay the sum on his behalf as part of his partnership agreement.
Ernst and Young and Mr Flitcroft, who were also formally reprimanded by the FRC, admitted their auditing of Farepak and its parent company European Home Retail fell below the expected standard.
The Swindon-based company collapsed in 2006 leaving 114,000 people with total losses of £37m.
Suzy Hall, the Edinburgh-based national campaign co-ordinator of Unfairpak, the victims' group which said it had raised concerns about Farepak's financial state with the auditors early on, said: "I am extremely happy to see that [the FRC] have seen fit to fine them, in fact they could have upped it a bit."
One allegation was that Ernst and Young failed to consider Farepak's ability to continue as a going concern.
After a series of legal battles, a final settlement meant customers and agents - often women on low-incomes - received a payment of about 32p in the pound from a compensation fund in early 2012.
When added to the 17.5p in the pound given by the Farepak Response Fund charity, set up by the government in 2006, customers received a total of approximately half of what they were owed, according to liquidators BDO.
Farepak's scheme involved customers depositing money on a weekly basis, with the sums they saved being paid out with vouchers that could be redeemed at some of the UK's largest retailers in the run-up to Christmas.
But EHR failed to ring-fence customer deposits and the money was sucked up by the parent group which had large debts with lender Halifax Bank of Scotland, now part of the Lloyds Banking Group.
Farepak's audit for the year ending in April 2005 was signed off in July 2005 but the date of the audit report in the financial statements was not until February 13, 2006.
The FRC ruled Ernst and Young and Mr Flitcroft failed to "perform adequate procedures" to assess "all material subsequent events" between July 2005 and February 2006.
Ernst and Young said it "regrets that aspects of our 2005 audit fell beneath our usual high standards", but stressed the regulator did not suggest its conduct triggered Farepak's collapse, or losses to savers.
The sanctions follow a move by the FRC, in June of this year, to impose a fine of £15,000, costs of £50,000 and a severe reprimand on William Rollason, the former EHR chief executive, who was a member of the Institute of Chartered Accountants in England and Wales.
It also follows the high-profile collapse of a High Court case in June 2012 in which the Insolvency Service was trying to bar seven former directors, including Mr Rollason, from taking future directorships for up to 15 years.
Judge Mr Justice Smith, after terminating the proceedings, said "not only did the directors do nothing wrong, but they made genuine strenuous efforts to save the group and the depositors".
He instead blamed the "hardball" approach of HBoS, accusing the bank of forcing the collapse by sucking the company dry of millions of pounds of savers' money while it was clear the company was heading for insolvency. Lloyds has always said it acted appropriately and contributed £2m to the victims fund after Farepak collapsed.