How is security deposit refunded?

I'm not sure what your interest in this one is, whether you're the landlord or one of the roommates.

The landlord can probably satisfy his legal duty, to repay the deposit at the end of the lease, by giving the money to either of the tenants; he can probably keep himself out of a dispute between the tenants by making the repayment in a check made out to both of them, with an "and" so they'd both have to sign it.  Returning the money just to the tenant who made the deposit would be the second choice.

Between the tenants, the one who made the deposit should get the money, but in the real world, the other tenant has been known to claim half, saying that they paid other moving expenses and there was an agreement to split the deposit, when returned, because of it -- whether or not that's the truth.  Having something in writing, between the tenants, at the time of the deposit, prevents "nonsense" later.