Try rebooting the laptop.
If that does not help, then try booting into Safe Mode to see if the problem still exists. If Safe Mode works, then most likely you have some third party software installed which is causing the problem.
Make sure nothing is connected to the headphone jack on the laptop since that can make the option for internal speakers disappear.
Disconnect all external devices in case one of them is causing a problem.
Try running the Apple Diagnostics to see if any hardware issues are detected (sometimes it may even run an audio test).
You are running way behind on software updates for Monterey....the current version is now at macOS 12.6.8 so try updating Monterey to see if it makes any difference. Don't worry about upgrading to macOS 13.x Ventura as it will not help for this issue. Once you resolve this audio issue, then you may want to upgrade to macOS 13.x Ventura so you are running the latest version of macOS for this laptop (at least until macOS Sonoma is released in a few months...best to wait to upgrade to Sonoma until Jan. 2024 so Apple can release patches for launch day issues).
You can try to "Revive" the firmware, but in my experience this rarely fixes anything. If none of the above helps, then you can try to perform a clean install of macOS or a firmware "Restore" to see if you still have the issue (just make sure to test the laptop before installing any third party software & before restoring from a backup). If none of this helps, then you will need to have Apple or an Apple Authorized Service Provider examine the laptop to provide you with a repair estimate.