Use the Callback Sequence SequenceFilePostStepRuntimeError. In this sequence, set Parameters.Step.Result.Status = "Failed" and Parameters.Step.Result.PassFail = False.
When an error occurs running a step in TestStand, it basically stops processing the rest of the step and just sets the status. The only thing that does occur is that the if the Ignore Errors property is set on the step, TestStand sets the Step.Result.Error.Occurred to False. What I have done in the past is either use the callback mentioned above to always do this, or for a single case, make the step ignore errors and add another second step to check the status of the previous step and if it errored, make the second step fail.