How is the slashed funds distributed upon failing to follow the requirements as a validator?
Slashed funds are not "destroyed" but they disappear from the map, you can review the CasperFFG code to see what happens there:
There is a proposal that we are very seriously considering, where a validator only loses their entire deposit if they are faulty around the same time that many other validators are faulty; if something happens to one single validator they would only lose a few percent of their deposit. This should make it safe enough to stake even without a multisig address.
It also has the nice side effect of adding an anti-centralization pressure, as there is an incentive not to stake with the same pool or on the same VPS platform or even with the same software as many other people, as each validator benefits from their failures being uncorrelated with those of other validators.
But don't worry, as Vitalik said here, staking isn't that risky if you behave well (or you try it).
Read the full discussion on reddit: https://www.reddit.com/r/ethereum/comments/7mmsvt/i_just_read_casper_ffg_paper_and_have_a_question/
Hope it helps!
It's not distributed, slashed funds are burned.