You need to use folderName/soundName.
Or set the project to flat mode in the advanced project settings.
Its not possible to choose subfolder from menu
About flat mode You have right.
When i choose simple play audio by picking FILE from menu and this file has been in subfolder, this works. So that confused me, and i ask myself why play sound by FILE NAME dont work with subfolders.
So maybe its not a bug (or maybe is, depends what effect Ashley want to receive) but could be more intuitive in the future