Diagnose Improper Valve Installation

What happens here

Upon removing the escutcheon, the set screw was found, indicating it had fallen out. The main issue, however, becomes apparent: the valve body is installed too far back in the wall. This prevents the handle from fully engaging with the set screw, or from sitting flush and securely. The inner barrel (sleeve) of the handle assembly, which threads onto the valve, cannot be threaded far enough to properly align the set screw with the valve stem. This is a fundamental installation error that cannot be resolved with a simple tightening of a set screw or application of Loctite.

Goal: Determine the root cause of the persistent looseness of the flow diverter handle.