We sold official check to customer and when it was presented for payment it had been turned in to a preauthorized debit, which had no signature, no fractional aba, payee was altered and it was not endorsed. I returned the item as a non cash item and if it is presented again I will return as altered. Has anyone had this issue? I could not find reg. to cover this

I have run into this as well. NACHA allows certain check types (generally personal checks) to be converted into point of purchase (POP) electronic withdrawals. The cashier processes the check to covert it and hands the original back to the customer with a "VOID" stamp on it. Occaisionally you will have a poorly trained cashier do this with a commercial item (generally identified by the check number in the auxillary field in the MICR encoding). The store's system will reject the electronic item because it is not eligible to be converted. Now the store has a problem. NACHA will not allow the item to be presented electronically, and the cashier returned the origianl document to the customer. So the store tries to collect with the "preauthorized debit." The problem for the bank is that it is still obligated to honor that cashier's check in the customer's possession and cannot put a stop payment on it. Generally, I kick these items back as unauthorized and put it back on the store to recover the check from their customer.

The item was not presented as an ACH, but a paper preauthorized debit

Correct, which is why I stated

Brian's said it more eloquently, but for it to be a "pre-authorized debit" your bank would have had to authorize it. It did not. Return it as unauthorized.

Thanks to you both