The Government has asked the courier firm TNT for a "full and urgent report" into how documents with personal details ended up in a road in Devon.
The papers were found on Thursday by a motorist on a roundabout near Exeter.
Karl-Heinz Korzenientz picked up hundreds of documents with passport photocopies and benefit claims details.
Secretary of State Peter Hain has ordered an immediate inquiry. TNT said it "deeply regretted" the temporary loss of the documents.
The papers included incapacity benefit files, others relating to pensions and Jobseeker's Allowance, bank statements, passport documents and copies of passports.
There were also documents relating to home loans and mortgage interest, and details of national insurance numbers, addresses and dates of birth.
"If I was a criminal, I would be having a heyday"
They were handed into Devon and Cornwall Police.
The Department of Work and Pensions (DWP) said: "We have now recovered a number of documents following their loss from a TNT vehicle and we believe they constitute all the material that was lost.
"We have no reason to believe that any individuals' details have been misused. We take the security of individuals' data extremely seriously.
"As part of our own inquiry, we have asked TNT for a full and urgent report on all of the circumstances relating to the loss of this data."
'Thorough inquiry'
The Information Commissioner has also been informed.
The courier firm said: "TNT takes the loss of any consignment extremely seriously.
"We are currently working closely with partners in the DWP and a full and thorough inquiry into this incident is currently being undertaken."
Mr Korzenientz, from Dawlish, said he had found similar documents in the same spot in the road near Exeter Airport in November last year.
He said: "If I was a criminal, I would be having a heyday. It is ridiculous papers like these are so lightly lost - on two occasions."
'Utter incompetence'
A major investigation is also underway into the theft in Birmingham of a laptop belonging to a Royal Navy officer which contained the details of 600,000 people.
In October two discs containing the entire child benefit database were lost in transit after they were sent by HM Revenue and Customs to the National Audit Office without being registered or encrypted.
Shadow work and pensions secretary Chris Grayling said that the loss of the documents was "utter incompetence" on the part of the Government.
"You would have thought that after the child benefits fiasco they would have treble-checked the security of all personal data in all Government departments.
"Peter Hain and his ministers have clearly been both irresponsible and negligent. It's just not good enough."
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