Overhang
Hey Gary,
Mismatch at the rear of the frame and slide was once fairly common, as very few production guns mated up perfectly. A few things can cause it...most are non-critical as long as the gun functions.
Lower barrel lug not cut quite enough can hold the slide back. So can a mismatch between slide and barrel locking lugs...or rather mislocation of the lugs on either one, or both.
Mislocation of the slidestop crosspin hole in the frame can do it.
Too much meat at the rear of the slide is always a possibility too.
Most custom smiths will match up the rear as a final step prior to finishing for the simple fact that it's hard to get a perfect blending at the rear...but a 16th of an inch is a bit off the scale and too much for a final blending. That much mismatch can also interfere with thumb safety engagement unless it's
a simple matter of a litle too much material at the rear of the slide.
The most critical issue would be correct disconnector function and reset. If the timing slot in the slide allows it to reset correctly, and won't allow the hammer to fall with the slide a 32nd inch out of battery, it's probably okay.
If the top of the disconnect hits the bottom of the slot with an audible "click"
when you release the trigger after dry-firing it and hand-cycling the slide to
work the group, you can deepen the slot a little with a scrape made for the task. Don't shorten the disconnect. Beyond that...if the gun works okay, and the thumb safety engages correctly without interference in its notch, don't worry about it. If you every have the gun refinished, you can have the smith blend the slide with the rear of the frame.