Head alignment will not impact the measurement process. I think that you have shown that the error is in the scale calibration. Dial errors occur if metric lead screws are used and the dial reading is an approximate inch value. A ".100"/turn" dial on a 2.5mm lead screw would move 25 mm or .984" in ten turns. Curiously, this is a .016"/1" error but it is in the wrong direction based on what you have experienced.
As far as I know, DRO scales are inherently metric, either 1micron, 5 micron, or 10 micron; and inch readout is done by a conversion factor. I would try using the metric readout. For 1 inch of travel, you should be reading 25.400 mm. If you are reading correctly, the conversion factor is wrong. If you are reading 25.806 or thereabout, I would suspect the scale calibration.