If I have built my device with the correct distance between the flange and the optical plane, does this mean the (inexpensive) lens I am using is bad?

If you had built your device using the proper specified flange distance of 17.526mm instead of rounding it off to 18mm you probably would not be asking this question. 0.474mm doesn't seem like much, but it is huge when your lens is that much too far from the sensor. Until you get the flange of the lens the proper distance from the imaging sensor, there's no way to know if the lens can focus to infinity as it should or not.

If not, is there a way to determine the right distance that I should use?

The specified registration distance for C-mount is 17.526mm. There is a reason the standard is spelled out to three significant digits past the decimal. Anything more than 17.526mm will not allow your lens to focus at infinity unless the lens is made to move past the infinity focus point when at the proper registration distance of 17.526mm.

If not, do I move the lens away or closer to the optical plane to fix the problem?

You need to move the flange closer - from 18mm in front of the sensor to 17.526mm in front of the sensor. It won't hurt much if you miss by being a little bit short (say 0.1mm), you'll just lose a bit of minimum focus distance. But being 0.1mm too far will almost certainly not allow your lens to focus at infinity.