That's an interesting point; however, I've tested a single stage Matheson regulator the same way and there was no decrease of pressure reading on the LPG.
Assuming it passed the test on the high pressure side, the leak is either coming through the diaphragm or one of the ports. I bet it's probably the diaphragm at this point.
+1. I'd also be willing to put my money on a leaky diaphragm at this point.
You can try to repair it if you have the tools/repair parts, though you might be better off just trying to get another regulator instead.