The management consultants who lost a computer data stick containing the names, addresses and expected release dates of all the 84,000 prisoners in England and Wales were yesterday sacked from their Home Office contract.

The home secretary, Jacqui Smith, announced she was terminating PA Consulting's £1.5m contract to keep track of persistent offenders in the criminal justice system and was reviewing its other contracts with her department, valued at £8m a year. The political embarrassment over this data loss is compounded by the fact that the company has been at the heart of developing the government's controversial identity cards project.

An investigation was launched by the Home Office after PA Consulting reported that the data stick had been found to be missing by an analyst when she returned from weekend leave on August 18. She had left it in her desk drawer, which had probably been left unlocked, in an insecure part of the company's offices in Victoria, London. The investigation concluded that it was unlikely that the data stick had gone missing as a result of a targeted theft and was most probably pilfered or just lost.

An assessment by the Association of Chief Police Officers has concluded that although there is a risk the information could be used to carry out revenge attacks, the chances of this happening are low.

The home secretary said yesterday that the personal details of the prisoners had been transferred from the Home Office to the company in a secure manner but that they were later downloaded on to an insecure data stick which had been lost. "Our contract had stipulated the sort of security provisions that needed to be in place and that had not happened," said Smith. "We are cancelling this contract and we are urgently reviewing the way in which PA Consulting are meeting the requirements of other contracts we have with them."

The company has been involved in a wide range of Home Office projects including the automatic number plate recognition scheme, introduction of a smartcard to make cash payments to asylum seekers, and the tightening up of visa applications. The decision to terminate its involvement in the J-Track contract, which monitors persistent and prolific offenders, could have serious implications for PA Consulting, whose annual contracts across government have been worth more than £240m since 2004.

The company yesterday blamed the loss on the "human failure" of a single employee who was in breach of its security processes: "We deeply regret this human failure and apologise unreservedly to the Home Office," said a statement. It said it had reviewed all its projects which involved sensitive data handling and concluded that this was an isolated incident.

But the shadow home secretary, Dominic Grieve, said it was the latest in a long list of fiascos, based on the government's careless approach to data management: "These serial failures are the result of flawed ministerial strategy. It is high time the Home Office, as well as reviewing PA Consulting's ID cards contract, scrapped that reckless scheme altogether."